Bank Failures

On Friday the 15 and 16, two more failing banks were closed. These closes has required the FDIC, Federal Deposit Insurance Corp, to fund approximately $100.7 million to purchase the assets of these two banks. With the smaller banks failing the government has been forced to bail out the larger ones like Citigroup. “The government has taken control of 36% of Citigroup, which had already received $45 billion from the government.” Will the government have to take more control of the banks to ensure that the money we deposit is safe?
If banks don’t get their criteria for loans tightened this may have to happen to make sure that the population still has faith in the US banking system.



Gracie said...

The FDIC already insures up to $100,000 per account. The government also has regulations that banks have to follow. What new ways would you propose the government to take control of the banks? If they took more control of banks and nationalized them competition would be limited. That seems to be a risky idea, in my opinion.

Anonymous said...

What is the other option? Let the bank fail, the government cover the $100k/account and accept that as the price of capitalism?

If the bank failing is not an option but no private capital is available, who else is left? Why shouldn't the government get a percentage of control when injecting capital - that is what any other investor would require.

Dr. Tufte said...

The $100.7 million figure is misleading. This is what FDIC has to pay out now, but it is not net of what they will get back. Typically, FDIC bailouts cost a few percentage points of that initial figure.

As to lending standards, the banks have tightened those up quite a bit. The thing is, this only affects new loans, not the outstanding ones.