New Depositor Protection Act In WorksA bill introduced in Congress would boost the FDIC's ability to request as much as $500 billion from the government to help boost its deposit insurance fund. This bill would give FDIC Chairman Sheila Bair a big loan to handle emergency situations in the banking sector, i.e. a big bank's failure.
The Depositor Protection Act of 2009, led by Senate Banking Committee Chairman Senator Chris Dodd of Connecticut and Senator Mike Crapo of Idaho, would give the FDIC the backing to start the clean up of the financial sector.
The Senate bill comes at a time when the health of some big banks is in question, with 17 smaller banks already failed in 2009, on top of the 25 that failed in 2008, including mortgage lender IndyMac and the collapse of the sixth largest bank, Washington Mutual in September.
Swift Action Needed To Repair Banking Sector
The federal agencies need to have a clear plan to address specific problems in the financial system, says Kansas City Federal Reserve President Thomas Hoenig. His words came on Friday, as he assessed the government's handling of the deepening financial crisis and called for swift action to restore confidence and transparency to markets.
He says that while the government would prefer not to 'nationalize' these businesses, he sees that reaction so far from institutions being nationalized in piecemeal fashion has made things worse. He says decisive action needs to be taken.
The Obama administration's announcement last month of a $350 billion bank rescue plan with stress tests for 19 large institutions has been criticized for lack of detail. The Federal Reserve and Treasury's launch of a consumer lending facility last week was aimed at unfreezing the credit markets. Last week stock markets hit 12-year lows, and unemployment reached 8.1 percent, a number not seen since 1983.
Hoenig sees replacing management of failed institutions and recognizing and writing down losses are needed quickly to get on with recovery.
Merrill Lynch Has Rogue Trader
More bad news for Bank of America after its acquisition of Merrill Lynch. One of its London currency traders, Alexis Stenfors, has reportedly lost 84 million pounds ($118 million) in what is being called "irregular trading." The company announced that there is an internal investigation ongoing in the matter.
The Financial Services Authority, the British market regulator, revoked the trader's license on February 26. Stenfors has not been arrested or charged yet in the case.
This rogue trader's alleged losses add another black eye to Bank of America that has found Merrill's annual operating losses of $41.2 billion an added weight. Those losses forced Bank of America to ask for another $20 billion in government help.