Friday, January 9, 2009

This Week in Bank Failures

No bank failures were reported tonight, but I don’t know of anyone who thinks the run of bank failures we’ve seen over the past five months is about to stop. The federal agency that does most of the hard work when a bank fails, the FDIC (Federal Deposit Insurance Corporation), has given itself an operating budget twice as large in anticipation of more work to come this year. It has also changed some of its rules in recent weeks in ways that seem intended to make its work easier.

The FDIC has already used one of those rule changes to sell IndyMac Federal Bank, the largest bank to fail last year, to a private investment group. In a deal announced January 2 and likely to close in February, IMB Management Holdings will buy and operate IndyMac. A group of seven investors, most with Wall Street ties, formed IMB Management Holdings. The investors plan to kick in enough additional capital to keep the bank solvent.

On the surface, it looks like a pretty good deal for the FDIC, which can’t afford to delay in selling off assets because of the possibility that its pool of assets from failed banks could continue to grow as the year goes along.

The U.S. Treasury has put an astonishing amount of money into bailing out some of the largest banks, and Nasdaq on Monday launched a new index to track those banks. The new bailout index, officially called the Nasdaq OMX Government Relief Index (symbol QGRI), includes all companies that have received at least $1 billion in bailout money from the Treasury’s Troubled Asset Relief Program (TARP), with the companies equally weighted. More companies will be added as more bailout money goes out. The index started at 1,000 and by this morning had fallen 7 percent to 924.

Some have started to ask why Washington has had so few questions about the financial crisis that last year caused the end of an era on Wall Street and brought down so many banks. The New York Times on Monday asked “Where Is Our Ferdinand Pecora?” suggesting that Congress might use its subpoena power to get to the bottom of the financial problems, as it did in a series of hearings in 1933.