What happens when the FDIC seizes a bank |
News - Hugh's Views | |||
Written by Hugh McManus | |||
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The question is, what happens when the FDIC seizes a bank. There are multiple processes, but when the FDIC moves in on a bank, it becomes the new owner--unless it has already found an other acquirer. There have been two or three more bank seizures in the past two weeks and in each case, the FDIC (other agencies were involved too) had another bank ready to buy the assets, so the company opened the following Monday as branches of a new bank. In terms of the anatomy of a seizure, that's interesting. The [i]Journal[/i] had an article on how it works on June 5, 2008. In summary, the bank doesn't know it's going to happen. Agents show up at a local hotel on Wednesday or Thursday night. They rent a conference room and pretend they're some sales or marketing organization--they have posters, etc. They work very, very hard to stay under cover until the actually raid the branches of the bank. They visit the town and identify all the branches, etc. Then on Friday afternoon, agents fan out and, simultaneously, enter all branches brandishing ID and any court documentation they need. They announce who they are and that all activities must stop. They tell the manager what is happening and they now "own" the bank. (I just though of an idea for a heist). The bank is closed. They work with employees over the weekend to identify all assets, etc. then reopen on Monday as a branch of the new XYZ Bank or else a bank run under the conservatorship of the FDIC. The old bank presumably goes away. At least the IndyMac Corporation did file Chapter 7.It's also multi-agency: FDIC, the Office of Comptroller of the Currency (little known, but they're in charge of credit cards), sometimes the Office of Thrift Supervision and the relevant State Agencies. For example, when Integrity Bank in Georgia was seized on August 29, always a Friday, the Georgia Department of Banking and Finance was involved. For WaMu, they'd have to close down all 1,300 branches, though I expect to see WaMu starting to sell things in the next few days. It would mean an operation involving maybe 13,000 agents, and I don't think that, even with state help, the Feds could muster that sort of number. I have no idea how it could be managed--most likely very discreetly. IndyMac should have given the Feds a nice data point about how customers will react: they'll provide great media fodder to feed on any hint of a perception of a crisis!! Freddie and Fannie are different in that the Treasury essentially nationalized the thing. FDIC seizes banks, then reopens them under new owners, either the FDIC or some other bank.
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