Monday, March 8, 2010

Banks On Edge Not Happy With FDIC Auctions

Bloomberg is out this morning with an uplifting story about the current state of our regional banking system. Apparently, banks that are on the brink are not happy with the FDIC's upcoming auctions of assets seized from failed banks because they may trigger writedowns of their assets and weaken them further. According to Bloomberg, of the $50.4 billion in loans seized from failed banks currently held by the FDIC, 63% involve participations by other lenders. Consequently, if the seized loan is auctioned at a discount, the lenders who participated on the loan will be forced to write down the loan on their own books.

The funny, and therefore highly mockable, portion of the story is the great quotes Bloomberg has managed to extract from the various mouthpieces of the banking industry. Take this gem from the lawyer who is representing 25 lenders that took part in financing the W Hotel (which will be auctioned next month by the FDIC): " These banks can't believe that the regulator they pay to protect them is going to sell these loans to someone who can flip them and cause them serious losses." For clarification purposes, the FDIC's role is not to protect banks; they are required to pay premiums in order to get deposit insurance. The FDIC is tasked with protecting depositors FROM banks, in the event that banks decide to piss away depositors' cash on ridiculous investments such as financing the construction of a W Hotel in Atlanta in the middle of a property glut and a credit bubble. Mr. Lawyer for the Bankers goes on to say "Our banks just cannot believe they are being treated in a way that ultimately hurts the FDIC's insurance fund because some of them are right on the edge." How dare the FDIC treat banks this way after they've done such a fabulous job winding up on the brink of insolvency!

"We have a number of banks teetering on the edge, and we don't need this problem" quoth the president of Community Bankers of Washington. Yeah, so can we just get back to burying our heads in the sand and forgetting about the fact that we're insolvent? That 140 banks failed last year, another 26 this year, and 702 are on the "problem" list? If it weren't for those pesky FDIC auctions, the banking system would be virtually sound. Right? In any event, those interested in purchasing a swank hotel in Atlanta, as well as a myriad of other half-built and partially vacant properties across the US, for a song are in luck.

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