Obama: U.S. Must Spend Itself Out of Recession

[SubGod22]

It can never hurt to shop around. There's a bank out there that'll work with him I'm sure.

[engrshock]

Since my wife is a banker I asked her about the problem. She indicates that most banks have money to loan and they know that they are being asked to make loans. However, another government agency (FDIC) is basically cracking down on higher risk loans and unsecured debt to the extent that they have to significantly increase their loan loss reserves and face the FDIC examiners to explain any questionable to the FDIC loans (not questionable to he bank loan officers). This focus of the FDIC is primarily on smaller banks that they examine and not on the big boys that caused the problems in the first place. As a friend of mine says they are in a Catch 20-20 situation. Damned if they do and damned if they don't except that if they do it could cost them more than if they don't.

[Maggie]

Since my wife is a banker I asked her about the problem. She indicates that most banks have money to loan and they know that they are being asked to make loans. However, another government agency (FDIC) is basically cracking down on higher risk loans and unsecured debt to the extent that they have to significantly increase their loan loss reserves and face the FDIC examiners to explain any questionable to the FDIC loans (not questionable to he bank loan officers). This focus of the FDIC is primarily on smaller banks that they examine and not on the big boys that caused the problems in the first place. As a friend of mine says they are in a Catch 20-20 situation. Damned if they do and damned if they don't except that if they do it could cost them more than if they don't.

I can appreciate the situation your wife describes. However, I am not sure I have a huge problem with it – the FDIC is primarily concerned with solvency.

Of all the federal regulators, the FDIC has probably performed most capably during the subprime fiasco. It has performed as well as it has because it has a fairly narrow, well-defined mandate — insuring Americans’ bank deposits — and because banks backed by the FDIC are obliged to play by its rules. It makes sense that the insurer of depository institutions is also their regulator: Because the FDIC is on the hook for bank deposits, it has a good financial incentive to manage banks’ risks intelligently. They should crack down on “risky” loans.

That said – it does put smaller banks in a difficult spot in certain quarters – e.g. they get characterized as the bad actor.

[SubGod22]

Since my wife is a banker I asked her about the problem. She indicates that most banks have money to loan and they know that they are being asked to make loans. However, another government agency (FDIC) is basically cracking down on higher risk loans and unsecured debt to the extent that they have to significantly increase their loan loss reserves and face the FDIC examiners to explain any questionable to the FDIC loans (not questionable to he bank loan officers). This focus of the FDIC is primarily on smaller banks that they examine and not on the big boys that caused the problems in the first place. As a friend of mine says they are in a Catch 20-20 situation. Damned if they do and damned if they don't except that if they do it could cost them more than if they don't.

I can appreciate the situation your wife describes. However, I am not sure I have a huge problem with it – the FDIC is primarily concerned with solvency.

Of all the federal regulators, the FDIC has probably performed most capably during the subprime fiasco. It has performed as well as it has because it has a fairly narrow, well-defined mandate — insuring Americans’ bank deposits — and because banks backed by the FDIC are obliged to play by its rules. It makes sense that the insurer of depository institutions is also their regulator: Because the FDIC is on the hook for bank deposits, it has a good financial incentive to manage banks’ risks intelligently. They should crack down on “risky” loans.

That said – it does put smaller banks in a difficult spot in certain quarters – e.g. they get characterized as the bad actor.

The only problem is that they seem more concerned with the smaller banks who actually run themselves properly and aren't as hard after the bigger banks that created the mess. I don't pretend to fully understand how everything works on the loan side of banks. I know mine is in good shape and hasn't had any issues and I've heard the same from friends who work at other banks in the area. I do know there are things where we've had to bend over backwards for whatever reason.

[engrshock]

Since my wife is a banker I asked her about the problem. She indicates that most banks have money to loan and they know that they are being asked to make loans. However, another government agency (FDIC) is basically cracking down on higher risk loans and unsecured debt to the extent that they have to significantly increase their loan loss reserves and face the FDIC examiners to explain any questionable to the FDIC loans (not questionable to he bank loan officers). This focus of the FDIC is primarily on smaller banks that they examine and not on the big boys that caused the problems in the first place. As a friend of mine says they are in a Catch 20-20 situation. Damned if they do and damned if they don't except that if they do it could cost them more than if they don't.

I can appreciate the situation your wife describes. However, I am not sure I have a huge problem with it – the FDIC is primarily concerned with solvency.

Of all the federal regulators, the FDIC has probably performed most capably during the subprime fiasco. It has performed as well as it has because it has a fairly narrow, well-defined mandate — insuring Americans’ bank deposits — and because banks backed by the FDIC are obliged to play by its rules. It makes sense that the insurer of depository institutions is also their regulator: Because the FDIC is on the hook for bank deposits, it has a good financial incentive to manage banks’ risks intelligently. They should crack down on “risky” loans.

That said – it does put smaller banks in a difficult spot in certain quarters – e.g. they get characterized as the bad actor.

It also means that if they make questionable loans they will be made to add to their loan loss reserves and reduce or negate any earnings they make that year. They are placed in a bad situation. I did not state that the the FDIC or OCC was not doing their due diligence now but where were they for B of A and CitiBank and the other big banks. Again this is not the FDIC or OCC's problem as they do not have the funds or manpower to closely examine all of the loans of those banks. Too big to fail evidently also means too big to have big brother looking at every loan and investment.

Further another form of income is being lost to banks with the new laws passed with respect to overdraft protection. Since the limits are placed on the overdrafts that can be charged many banks will just drop the coverage and let the checks and debit card bounce as they may rather than take the risk of deadbeats not paying their overdrawn accounts. There were abuses by some banks of the overdraft charges but it is going to affect all banks and people who do not keep proper monies in their account. the overdraft charges are basically a charge for using unsecured lines of credit until they did get money into their account. Now they will just get to pay more returned check fees or have more transactions declined. Perhaps that is at it should be.

[Maggie]

engrshock,

I am not sure we disagree on much. As an aside, I simply don’t have a big problem with the existence of the FDIC (not saying you do either). Without the FDIC, we’d be in a world of hurt far worse than the one we’re in now. Without the federal deposit guarantee that the FDIC provides, people would take their money out of banks and hoard it in real cash. Such hoarding would severely contract the money supply (because each dollar in the bank creates multiple dollars in deposits).

Some regulations are bad; good regulations are necessary; and the best of them have held up remarkably during this severe test, arguably the greatest test since their creation, since the FDIC became permanent law after the worst failures of the Great Depression.

[engrshock]

I am not disagreeing with you or attacking FDIC. The FDIC has stepped up their review of smaller banks. I guess I am just concerned that the problem that came to the front was due to the actions of the big banks which are not so well monitored. Also it was brought up in this thread that someone had lost their line of credit. That is not unusual at this time given what banks are faced with and it is not because of banks not wanting to loan money to good long term customers. I was on an airplane with a gentlemen that was trying to get funds for a stockyard that he owns with some others and he was very frustrated because they need the line of credit to do business but that type of thing is on a watch list by the FDIC. He managed to work something out gut he had to provide collateral. He also said that a construction supply business he had in Florida was not able to get funding with their normal bank of many years because "construction" was in the name and in Florida it is hard to get loans for anything relating to construction.