14 April 2010

Bank On It

"The Federal Deposit Insurance Corp. faces a daunting task in finding a solution for the broken banks in Puerto Rico that doesn't damage the surviving banks or the island's economy.

The FDIC is trying to minimize its potential loss from three weak Puerto Rican banks by drumming up interest among banks and private-equity investors in buying W Holding Co Inc.'s Westernbank, R&G Financial Corp.'s R-G Premier Bank, and EuroBancshares Inc.'s EuroBank, according to several people familiar with the matter. All three banks are in dire financial condition; closing them could cost the FDIC insurance fund as much as $10 billion, based on worst-case losses from recent bank failures"

From Seeking Alpha Instablog, by someone who signs as "PPY."


But the original source comes from The Wall Street Journal Online and since you mightt have to pay for that, I figured I'd save you the ponying up.

You're welcome.

Three local banks on the verge of going under, one of which (Westernbank) was the darling of mid-sized bank connoisseurs barely a decade ago.

So wha' happen'?

Beats Me. Blame greed, blame the economy, blame greedy economics, blame Guido the Electronics Guy, blame the banks themselves for being mismanaged. At the rate banks are failing in the U.S. of part of A., what's three more, right? Right?

Look back at PPY's post. Note that all 3 local banks in danger have assets amounting to about $20 billion dollars. If the FDIC closed them, it would lose about $10 billion, meaning that covering the deposits of these banks would cost the FDIC $10 billion more than it took in from these banks.

Does that mean that the  $20 billion is totally covered by the FDIC? Nuh-uh. Look at your bank's little brochure or website and note that the FDIC covers deposits only up to $250,000 per account [Correction from "$100,000." Thanks to commenter enogueraS.] We don't know how much of the $20 billion these banks have is uncovered, but it is some number.

So PPY speculates that what's going to happen is that the FDIC will shut down the banks and sell the valued assets to private investors, and though he doesn't state this outright, for pennies on the dollar. Private investors get value and profits, the taxpayers got hosed. Again.

And Us? Well, 3 of Our 10 largest banks are spiraling for a crash landing, which means We get even less banking support than We get now, even with the lead obstacle to growth (Banco Popular) also tottering like a cracked tower.

Economic recovery? Not in the next 3 years We won't. And that, oddly enough, means that the 2012 elections will be about the economy, the economy and let Me put this bluntly, the stinking economy.

Failed banks? A dime a dozen, if you're a private investor crony; a debt to Our grandchildren for the  rest of Us.

Failed re-election bid? Bank on it.

The Jenius Has Spoken.


enogueraS said...

Mr. Obama raised that limit to $250K a while back.


Davsot said...