Savers have long been able to take advantage of the above-average yields that weak banks pay to attract money. But those days may soon be over.
The Federal Deposit Insurance Corp. today proposed new limits on deposit rates paid by banks that have less-than-adequate capital.
The agency would throw out its current complicated formulas for determining "permissible" maximum interest rates on deposits at weak banks, and replace them with a relatively simple formula: The new cap would be 0.75 of a percentage point over national average yields.
"The idea is to prevent these banks from acting in a way to compound losses to the FDIC," Chairman Sheila Bair said at the agency’s board meeting in Washington, according to Bloomberg News.
If the rules were in place today, the FDIC said, a weak bank would be limited to paying 2.3% on a six-month certificate of deposit. That would be 0.75 of a point above the national average yield of 1.55%, according to FDIC data.
Faced with mounting lender failures, the FDIC is trying to limit its losses when it takes control of banks and honors its insurance commitment to savers. The agency insures up to $250,000 per account, a limit that was raised from $100,000 last year.
Just before Pasadena-based IndyMac Bank failed in July, it was offering the highest yields in the nation on six-month and one-year certificates of deposit. IndyMac’s six-month CD yield was 4.10%, compared with a national average of 2.23% at the time.
The FDIC had 154 banks on its list of under-capitalized institutions as of Sept. 30, out of a total of 8,300. The agency doesn’t disclose the names of the banks.
The FDIC will take comments on its proposed changes for 60 days.
In light of President Barack Obama’s firm commitment to transparency, accountability and oversight in our government’s approach to stabilizing the financial system, U.S. Treasury Secretary Tim Geithner today announced several key reforms to the Emergency Economic Stabilization Act (EESA). As one of his first acts as the 75th Treasury Secretary, Secretary Geithner outlined new, stepped up rules designed to limit the influence of lobbyists and special interests in the EESA process and ensure that investment decisions are guided by objective assessments in the best interest of the health and stability of the financial system.
“American taxpayers deserve to know that their money is spent in the most effective way to stabilize the financial system. Today’s actions reaffirm our commitment toward that goal,” said Secretary Geithner.
Today’s announcement builds on several reforms to the EESA previously outlined by President Obama, including monitoring and tracking lending patterns by financial institutions, limiting executive compensation, and preventing shareholders from being unduly rewarded at taxpayer expense. These new rules go beyond the approach taken under the EESA to date and will help ensure a new level of openness and accountability going forward.
The new rules include:
Combating lobbyist influence in the EESA process: The Treasury Department will implement safeguards to prevent lobbyist influence over the program, including restricting contacts with lobbyists in connection with applications for, or disbursements of, EESA funds.
Keeping politics out of funding decisions: The Treasury Department will ensure that political influence does not interfere with EESA decision making, using as a model for these protections the limits on political influence over tax matters.
Certification to Congress on objective decision making: In reporting to Congress, the Office of Financial Stability (OFS) will certify that each investment decision is based only on investment criteria and the facts of the case.
The investment process will be transparent and based on objective criteria:
-Only banks recommended by the primary bank regulator will be eligible for capital investments.
-OFS will publish a detailed description of the investment review process undertaken by the regulators and OFS.
-The Treasury Department will ensure adequate resources exist to process applications as quickly as possible with priority to the date of the application as received by OFS and will formulate procedures to ensure integrity and regularity in the application process.
Manic Progressive: A liberal who violently swings from anger at politicos to despondency over them.
Out Of Context theatre: Ron Paul has repeatedly said he's not a racist. - Destructinator XIII on why Ron Paul isn't racist.
