Friday, October 2, 2009

Moving Through America's Twilight: Bank Failure Friday's And Bank Failure Insurance

Banks Have Us Flying Blind on Depth of Losses

Commentary by Jonathan Weil

Oct. 1 (Bloomberg) -- There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.

It failed last week.

Georgian’s clean-up will be unusually costly. The book value of Georgian’s assets was $2 billion as of July 24, about the same as the bank’s deposit liabilities, according to a Federal Deposit Insurance Corp. press release. The FDIC estimates the collapse will cost its insurance fund $892 million, or 45 percent of the bank’s assets. That percentage was almost double the average for this year’s 95 U.S. bank failures, and it was the highest among the 10 largest ones.

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IMF Eyes Bank Failure Insurance

Kevin Carmichael


The International Monetary Fund appears poised to throw its weight behind the idea of requiring banks to pay for financial crisis insurance.

Speaking to reporters as economic officials from around the world gather for several days of meetings in Turkey's biggest city, Managing Director Dominique Strauss-Kahn said the IMF will spend the next several months reviewing proposals that would see banks set aside a portion of their profits to mitigate the cost of systemic failure.

Leaders from the Group of 20 commissioned the study after their summit in Pittsburgh last week. While still far from making any conclusions, Mr. Strauss-Kahn signalled that he is sympathetic to the idea, saying governments could force financial institutions to contribute to a fund that could act as insurance or help low-income countries that end up sideswiped by another global credit crisis.

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