bank run blog

The California Department of Financial Institutions closed the doors of the Alliance Bank of Culver City. The Federal Deposit Insurance Corporation has been appointed receiver. The assets of Alliance will be sold to the California Bank & Trust of San Diego. Alliance Bank locations will reopen on Monday as branches of California Bank & Trust.

The FDIC said in a release that California Bank & Trust has agreed to enter with the agency into a “loss share agreement” where the bank will share in losses on some of Alliance Bank’s asset pools. The cost of replacing insured deposits for the FDIC will be $206.0 million. Alliance Bank is the eighth bank to fail in 2009 and the second this year to fail in California.

See release-
FDIC : California Bank and Trust, San Diego, CA, Acquires All of the Deposits of Alliance Bank, Culver City, CA

Bloomberg reports that the government controlled mortgage giant Freddie Mac is poised to request additional billions of dollars in federal monies as “fourth quarter operating losses will again drive its net worth to below zero.” Bloomberg predicts that Freddie Mac will seek $35 billion more in government aid, and that government supported Fannie Mae will also soon require an additional infusion of taxpayer cash. Freddie Mac received $13.5 billion from the US Treasury Department in November.

Bloomberg quotes an analyst with FBR Capital Markets, Pete Millier, who said;

“Their losses are going to be much higher than anyone anticipated. The more and more that people are digging into these portfolios, they’re finding out the more and more these guys were doing subprime and Alt-A loans and classifying them as prime.” Alt-A loans were made to borrowers with little or no income verification or to those with credit scores slightly above subprime.”

Freddie Mac and Fannie are the largest mortgage companies in the US, owning or guaranteeing a nearly half of the $12 trillion home mortgage market. The two companies have posted five consecutive quarters of losses totaling $68.4 billion.

When the companies were taken into receivership by the Treasury Department last fall, they were guaranteed up to $300 million in emergency funds, but even that amount may not be sufficient. Fannie Mae is expected to seek $100 billion of the promised monies. Miller said;

“Given that they have $4.5 trillion of risk out there, $100 billion is a drop in the bucket. Given the fact that their risk profile on these loans is greater than they led everyone to believe, greater than $100 billion in losses on each institution would not surprise me.”

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Bloomberg : Freddie Seeks Up to $35 Billion From U.S.; Fannie May Follow

The FDIC has announced the failure of First Georgia Community Bank of Jackson, Georgia. The federal agency has arranged a sale of the failed bank’s assets and deposits to United Bank, Zebulon, Georgia.

First Georgia Community Bank is the twenty-third bank to fail in the nation this year, and the fourth to be closed in Georgia. From the official press release :

“First Georgia Community Bank, Jackson, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with United Bank, Zebulon, Georgia, to assume all of the deposits of First Georgia Community Bank.

The four branches of First Georgia Community Bank located in Jackson, Covington, Griffin and Locust Grove will reopen on Saturday as branches of United Bank. Depositors of the failed bank will automatically become depositors of United Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of the failed bank should continue to use their existing branches until further information is received from United Bank.”

see resources-

FDIC Failed Bank Information Page : United Bank Acquires All the Deposits of First Georgia Community Bank, Jackson, Georgia

Bloomberg : First Georgia Community Bank Shut, 23rd U.S. Failure

A group of 300 US companies is lobbying Congress to suspend portions of a 2-year old law that was enacted to ensure the stability of company funded worker pension plans. The companies threaten that they will have to cut jobs in order to meet the requirements of the pension protection law. The group of businesses includes Ford Motor Co, Pfizer and IBM.

The Pension Protection Act of 2006 included a provision requiring that company defined benefit retirement plans must be fully funded. The intent of the law was to to ensure that company pensions plans have money to meet the company’s obligations to their workers.

The business block wants Congress to extend the time frame given to companies to fund their retirement programs (seven years under the current law) and also wants Congress to allow accounting changes that would let businesses apply stock market losses to pension plans over longer time periods.

What is driving the push by businesses to convince lawmakers to relax pension safety net protections is the dramatic loss in value in the stock market. The Los Angeles Times writes;

“With many plans heavily invested in stocks, the recent drop in the market, which saw the S&P 500 index fall about 35% in a year, has caused steep pension losses. A report this month by the Center for Retirement Research at Boston College estimated that equities held by private defined benefit plans lost nearly $1 trillion in value in the year that ended Oct. 9…

Military contractors such as Lockheed Martin Corp. and Northrop Grumman Corp. have reported big losses to their funds, and some Wall street analysts warn that military firms face a funding shortfall of as much as 25% because of the market woes…

Steel companies, already hammered by a free fall in steel prices, face similar shortfalls, with an analyst predicting last week that United States Steel Corp. could face a $2.2-billion funding shortfall next year. Aircraft maker Boeing Co. said in late October that its pension plan was down 20% on the year.”

The Times says that “About 75% of companies in the S&P 500 still have traditional pension plans, according to Judy Schub, a managing director of the Committee on Investment of Employee Benefit Assets. The committee represents most large corporate pension plans and is pushing for the pension reform freeze.”

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Los Angeles Times : Companies lobby Congress for pension help

The Federal Reserve reports that savings deposits at commercial banks jumped $186 billion from Sept. 1 through Oct. 20, to $3.29 trillion. The Los Angeles Times reports that the flow of dollars into protected bank accounts shows that individual depositors are concerned about the stability of financial institutions. The Times writes;

“One aim of the government’s financial-system bailout plan is to make strong banks stronger while forcing weaker institutions to sell themselves or risk liquidation.

Individual savers are abetting this strategy. Since Sept. 1, they have shifted significant sums into banks and out of thrift institutions, which tend to be smaller and therefore more likely to be perceived as vulnerable to financial trouble.


These data strengthen the gravitational pull of money moving toward the ‘club,’ those banks that are on the receiving end of money from Uncle Sam,” said Tony Crescenzi, bond market strategist at Miller, Tabak & Co. in New York.”

At the same time, the nation’s thrifts lost a net $109 billion in savings deposits. The Times reports;

“The trend has been the same with certificates of deposit. Commercial banks gained a net $113 billion in small CDs (those under $100,000) from Sept. 1 to Oct. 20, lifting their total to $978 billion. Thrifts lost a net $38 billion in small CDs in that period, to $339 billion.”

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Los Angeles Times : Savers migrate to banks propped up by Uncle Sam