[Bryan]

Originally Posted by Hopeful

NYT: FDIC may borrow cash from banks - The New York Times- msnbc.com

Jerry, I'm not making this up! Please read the above from today's NYT as posted on MSNBC. Looks like this argument has taken a very strange new twist, especially with respect to the banking industry and the question at hand. How ironic, members of the banking industry are now talking about loaning money to the FDIC to help bail it out! The regulators need help from...private industry!!!!

this would not be a bail out. The FDIC is, essentially, a savings account for the banking industry that is used if a bank fails. Lots of banks have been failing and the FDIC is running low. This isn't due to bad management or bad business practices, it is because so many banks have failed and the FDIC has had to fork over too much cash.

[JerryLove]

Yes. Let's put some proper perspective here.

The FDIC is an insurance company. It has income and expenses. There's been a recent spike in expenses and the FDIC is looking to raise short-term capital.

It *could* actually draw from an existing line of credit with the Treasury, or it could levy an assessment against its customers (a fee to banks), or it could simply borrow the money and pay it back out of income.

The buzz in the news is that the third is most likely.

Since when is any business taking a loan to pay expenses a "bail out"?

[doulos14]

Originally Posted by JerryLove

Yes. Let's put some proper perspective here.

The FDIC is an insurance company. It has income and expenses. There's been a recent spike in expenses and the FDIC is looking to raise short-term capital.

It *could* actually draw from an existing line of credit with the Treasury, or it could levy an assessment against its customers (a fee to banks), or it could simply borrow the money and pay it back out of income.

The buzz in the news is that the third is most likely.

Since when is any business taking a loan to pay expenses a "bail out"?

I would agree that a loan is not a bailout, when they sign for that loan they agree to pay for it, not just take it for free. I believe that was what the op was saying

[Hopeful]

Well, maybe "bail out" is the wrong term. But, in any event, in the context of the other thread that Bryan pulled this from, I think it is ironic that the banks (private industry) are talking about coming to the rescue of the government. And let me correct something that Jerry said. An insurance fund is just one of the functions of the FDIC - it is not its only function.

[JerryLove]

Originally Posted by Hopeful

Well, maybe "bail out" is the wrong term. But, in any event, in the context of the other thread that Bryan pulled this from, I think it is ironic that the banks (private industry) are talking about coming to the rescue of the government. And let me correct something that Jerry said. An insurance fund is just one of the functions of the FDIC - it is not its only function.

The Federal Deposit Insurance Corporation (FDIC) was created for the purpose of... wait for it... providing federal insurance for deposits.

FDIC Mission, Vision, and Values

And "coming to the rescue" is just as misleading as "bail-out".

Again. A company has incurred expenses and is raising capital to cover them. They have several options open. One is simply borrowing the capital. This is what everyone (almost) does.

Heck. The banks in question may be getting the money they loan from the FRB.

[Hopeful]

Originally Posted by JerryLove

The Federal Deposit Insurance Corporation (FDIC) was created for the purpose of... wait for it... providing federal insurance for deposits.

FDIC Mission, Vision, and Values

And "coming to the rescue" is just as misleading as "bail-out".

Again. A company has incurred expenses and is raising capital to cover them. They have several options open. One is simply borrowing the capital. This is what everyone (almost) does.

Heck. The banks in question may be getting the money they loan from the FRB.

Call it what you want. Coming to the rescue is what they're doing. And if you read your link past the first line, you will see that they have other functions, not just insurance - just as I said.

You only assume the banks could be borrowing from the FRB. But one could also assume they have liquidity of their own available to lend to the FDIC. A loan to the FDIC would have to be for more than a short term which is what banks do when they borrow Fed Funds for immediate liquidity needs. That would be a mismatch in funding.

[Hopeful]

Originally Posted by Bryan

this would not be a bail out. The FDIC is, essentially, a savings account for the banking industry that is used if a bank fails. Lots of banks have been failing and the FDIC is running low. This isn't due to bad management or bad business practices, it is because so many banks have failed and the FDIC has had to fork over too much cash.

From the article:

"...officials may soon ask banks to bail out the government." Only reiterating...

[Bryan]

the article is wrong.

[Hopeful]

Originally Posted by Bryan

the article is wrong.

The article is not wrong - have some humility. Banking has been my vocation since 1972. You just don't google this stuff and become an expert. BTW, my contract job for the last 11 months has been with the FDIC. But, I will give you a chance to explain how the article and Sheila Bair are wrong and how you know they are wrong.

Also, please check you PM.

[JerryLove]

Originally Posted by Hopeful

Call it what you want. Coming to the rescue is what they're doing. And if you read your link past the first line, you will see that they have other functions, not just insurance - just as I said.

Which non-insurance function is it that has caused them to need capital?

You only assume the banks could be borrowing from the FRB. But one could also assume they have liquidity of their own available to lend to the FDIC.

After something like a trillion in bailouts, I would hope they have liquidity.

But please name the major bank that doesn't borrow from the FRB.

A loan to the FDIC would have to be for more than a short term which is what banks do when they borrow Fed Funds for immediate liquidity needs. That would be a mismatch in funding.

So a minute ago they weren't borrowing from the FRB, but now they are, they are just not using that for this.

The latter is perhaps true. I've never claimed that all banks lack lending capital.

[JerryLove]

Originally Posted by Hopeful

The article is not wrong - have some humility. Banking has been my vocation since 1972. You just don't google this stuff and become an expert.

How does that make you an expert on the definition of "bail-out"?

BTW, my contract job for the last 11 months has been with the FDIC. But, I will give you a chance to explain how the article and Sheila Bair are wrong and how you know they are wrong.

Because giving a loan to a solvent company with several avenues of acquiring capital under a structured repayment isn't a "bail out".

[adamwagg]

On the bail-out term, it doesn't even sound like they are in that much trouble. They have a number of options to get the money. To me a bail-out in the way the media and others have tended to use it is being saved by someone who shouldn't necessarily have to or usually save you and its your last option. Very little of that is met in this case. It just seems to be a loan, cause that's better than using their already approved line of credit.

[Bryan]

Originally Posted by Hopeful

The article is not wrong - have some humility. Banking has been my vocation since 1972. You just don't google this stuff and become an expert. BTW, my contract job for the last 11 months has been with the FDIC. But, I will give you a chance to explain how the article and Sheila Bair are wrong and how you know they are wrong.

Also, please check you PM.

I did check the PM.

While I don't have almost 40 years of experience in banking. I have been in the brokerage industry for over 5 years now. I am series 7, 24, 4, & 66 licensed and I manage the sales strategy for a salesforce of about 1000 people. I know what a bailout is, and this isn't it.

First, they still have approximately $10 billion in capital left. That doesn't include the $32 billion they have already set aside for the bank failures they expect to occur.

Second, the term "bail-out" has the implication that something must be done now or a company will go bankrupt. They will only really need this loan if the unexpected happens (which, granted seems to be happening more often right now).

Third, they have other options available to them. "Bail-out" implies that this is the last option.

What does bother me about this situation is the main reason they don't want to tap the treasury line of credit is because the FDIC chairwoman doesn't like the treasury secretary.

But such a step is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained. “Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

Seems like a professional could set aside petty differences. Honestly, I'd rather not have someone who can't running the company that insures my bank deposits.

[Hopeful]

Originally Posted by Bryan

I did check the PM.

While I don't have almost 40 years of experience in banking. I have been in the brokerage industry for over 5 years now. I am series 7, 24, 4, & 66 licensed and I manage the sales strategy for a salesforce of about 1000 people. I know what a bailout is, and this isn't it.

First, they still have approximately $10 billion in capital left. That doesn't include the $32 billion they have already set aside for the bank failures they expect to occur.

Second, the term "bail-out" has the implication that something must be done now or a company will go bankrupt. They will only really need this loan if the unexpected happens (which, granted seems to be happening more often right now).

Third, they have other options available to them. "Bail-out" implies that this is the last option.

What does bother me about this situation is the main reason they don't want to tap the treasury line of credit is because the FDIC chairwoman doesn't like the treasury secretary. Seems like a professional could set aside petty differences. Honestly, I'd rather not have someone who can't running the company that insures my bank deposits.

This is exactly why I wish the comment had stayed in the thread where it was. Because the intent of the original post where I put it was with respect to how private industry was now offering to help the fed government - which I think is contrary to the premise of the original post. Now we're arguing about whether or not this is a "bail out", which is not what this is all about. Call it what you want, but the problem I'm having with this discussion is that we have reduced the term "bail out" to what we have come to see it with Congress approving money to "bail out" the banks. It is now meant only as a giveaway? In the historical use of the term, "bail out" would be used in many cases, but almost always to mean a "helping" of some sort - regardless of the conditions under which the aid was rendered. Historically, its been used in sports, law, business, government, families, relationships, schools - whatever. In the classical sense of the term, this is a form of help and the writer of the article is not wrong.

Now, to put it into context, there are banks in this country that have the wherewithal to provide help to the FDIC because the funds that were allocated through the TARP and in the insurance fund are running out. Again, my point was that the feds don't always have the answer, and it is not as simple as you make it out to be.

[Bryan]

Originally Posted by Hopeful

This is exactly why I wish the comment had stayed in the thread where it was.

that thread was closed, and I felt that this was worthy of discussion. If you don't like it, then don't post, nobody is holding a gun to your head.

Because the intent of the original post where I put it was with respect to how private industry was now offering to help the fed government - which I think is contrary to the premise of the original post. Now we're arguing about whether or not this is a "bail out", which is not what this is all about. Call it what you want, but the problem I'm having with this discussion is that we have reduced the term "bail out" to what we have come to see it with Congress approving money to "bail out" the banks. It is now meant only as a giveaway?

yup

In the historical use of the term, "bail out" would be used in many cases, but almost always to mean a "helping" of some sort - regardless of the conditions under which the aid was rendered. Historically, its been used in sports, law, business, government, families, relationships, schools - whatever. In the classical sense of the term, this is a form of help and the writer of the article is not wrong.

Now, to put it into context, there are banks in this country that have the wherewithal to provide help to the FDIC because the funds that were allocated through the TARP and in the insurance fund are running out. Again, my point was that the feds don't always have the answer, and it is not as simple as you make it out to be.

I'm not trying to make it simple. I know it isn't. But the term "bail-out" (regardless of how it was used in the past) has a different meaning today and has some negative connotations. So in today's world, bail-out is a bad thing. It implies all sorts of negative emotions and gives an image of mismanagement and questionable ethics. To use the term in this case is irresponsible.