http://www.bloomberg.com/…

The Federal Deposit Insurance Corp. will charge U.S. banks a one-time assessment and increase other fees to replenish its insurance fund, adding $27 billion in costs to an industry already hobbled by the financial crisis.

The FDIC board today approved charging banks an “emergency special assessment” in response to an estimate that bank failures could cost the fund $65 billion through 2013. The added fees are projected to generate $27 billion this year, compared with the $3 billion raised in 2008, the FDIC said.

“We’re taking steps today to ensure that the deposit insurance system remains sound,” FDIC Chairman Sheila Bair said today during the board meeting at the agency’s Washington headquarters. “These steps are necessary because banks, and not taxpayers, are expected to fund the system.”

The deposit insurance fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the preceding three-month period, the FDIC said yesterday. The fund, used to reimburse customers for deposits of as much as $250,000 when a bank fails, has been shrunk by 39 failures since the beginning of 2008.

The FDIC is required by law to replenish the fund when the reserve ratio, or fund balance divided by insured deposits, falls below 1.15 percent. It stood at 0.40 percent at the end of the fourth quarter, the lowest level since the second quarter of 1993, the agency said yesterday.

The one-time emergency fee of 20 cents per $100 in insured deposits would be collected in the third quarter and would generate $15 billion, according to FDIC staff members. A bank with $1 billion in deposits would pay $2 million under the special assessment, they said.

Like the banks need this right now… but it was entirely predictable.

http://finance.yahoo.com/…

The incoming Obama administration is considering setting up a government-run bank to acquire bad assets clogging the financial system, a person familiar with the Obama team’s thinking said on Saturday.

The U.S. Federal Reserve, Treasury and Federal Deposit Insurance Corp have been in talks about ways to ease a banking crisis that is once again deepening — and a government-run “aggregator bank” is among the options.

Outgoing Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair both said on Friday a government bank was one of a number of ideas U.S. regulators had been discussing.

The source said advisers to President-elect Barack Obama, who takes office on Tuesday, were also considering the idea of an aggregator bank among a range of options that could be pursued.

David Axelrod, a top adviser to Obama, told Reuters the new administration would have something to say about a fresh approach to the financial crisis in “the next few days.”

Yes… because the first two worked out so well.

The story is a few days old but I’ve not seen much coverage. It seems doubtful to me something like this would occur. Those in power and coming to power seem to prefer fascism to socialism.

http://www.usatoday.com/…

More than half of mortgages modified in a bid to avoid foreclosure fell delinquent within six months, a top U.S. banking regulator said Monday, casting doubt on a proposal to rewrite home loans en masse.

Comptroller of the Currency John Dugan said it is unclear why so many borrowers ran into trouble again so soon after getting help, and that raises questions about how policymakers should address loan modifications.

“Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt?” Dugan said at a housing conference in Washington organized by the Office of Thrift Supervision.

“Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?”

The crumbling housing market is at the heart of the financial crisis that tipped the United States into recession and dragged down the global economy, and regulators are scrambling to find a way to limit foreclosures.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, has been a big proponent of a home loan modification program that would encourage lenders to rework a greater number of mortgages by pledging public money to share the cost of defaults on restructured loans.

However, Dugan’s figures suggested that the cost to taxpayers may be high. He said his data showed that of mortgages that were modified in the first three months of 2008, nearly 36% had re-defaulted after three months, and almost 53% were behind on payments by six months.

These people lived far beyond their means. Dropping the monthly payments isn’t likely to help greatly as the banks are going to be incentivized to keep payments higher otherwise the mortgage would be spread out possibly over several decades. One should not ignore too that those with mortgages are incentivized not to worry much about keeping payments up to date given the bailout mentality currently running rampant. Why bother paying my mortgage when if I default the government will step in and take on the high risk, low return debt and refinance it to something ridiculously low? The system is entirely incentivized to fail… the fact it works at all is a testament to the market and some people’s personal responsibility.

http://www.bloomberg.com/…

Nov. 24 (Bloomberg) — Citigroup Inc. received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week.

The second-biggest U.S. bank by assets surged as much as 72.4 percent in New York trading after the Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced the aid plan in a joint statement. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The regulators stepped in to protect Citigroup from losses on a $306 billion pile of troubled U.S. home loans, commercial mortgages, subprime bonds and corporate loans when the firm’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries. The $20 billion of new cash comes on top of a $25 billion infusion the bank received last month under the Troubled Asset Relief Program, passed by Congress to shore up the financial industry.

“It really was a must-do thing,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.”

Citigroup’s stock sank about 80 percent this year and dropped below $5 last week for the first time since 1994. The shares closed last week at $3.77 on the New York Stock Exchange. They gained 65 percent to $6.22 at 11:00 a.m. in NYSE composite trading today, after rising as high as $6.50.

Not a surprise. Just like the coming car manufacturer bailout. Stock markets, as one would expect, are cheering this action on. Some financial stocks are up 30%+.

http://www.reuters.com/…

The Senate agreed to vote on Wednesday night on a $700 billion financial rescue package that will include a sharp increase in the amount of bank deposits insured by the FDIC, but also includes a package of tax breaks the House of Representatives has rejected.

A Democratic aide predicted that “the Senate will pass it.”

Under the agreement to move the bill to the floor quickly, the measure will require 60 votes to pass instead of a simple majority in the 100-member chamber.

The Senate bill would increase to $250,000 from $100,000 the amount of individual deposits the Federal Deposit Insurance Corp insures, seeking to shore up consumer and business confidence in banks and win over lawmakers trying to sell their constituents on an expensive plan funded by taxpayers and seen as benefiting wealthy financiers.

The FDIC insurance money comes from the general account which is in the red already. Any payments would have to be borrowed or printed. In addition the FDIC covers all banks equally which is a distortion of the market. Insurance rates for the banks should be based on their solvency and related factors. Treating them the same incentivizes risky investments.

I’m glad it will require 60% to pass but my feeling is it’s likely to pass. Only a third of the senators are up for reelection and the FDIC and tax breaks may be enough of a carrot to push it over.

You can find the tax components at the Senate Finance Committee site but the FDIC increase is not listed.

Regardless of what we think they may do we need to keep up the pressure. Email the senators of your state and tell them in no way do you support this bill nor anything related to it. If they are up for reelection make sure you remind them this would be an absolute deal breaker for your vote (regardless of whether you would have done so anyway.)

It’s the last thing listed on the schedule so we have all day to overwhelm them with “NO”s.

You can utilize DownsizeDC or go straight to the senators site.

http://www.bloomberg.com/…

JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire Washington Mutual Inc.’s deposits and branches for $1.9 billion after regulators seized the thrift in the biggest bank failure in U.S. history.

Customers withdrew $16.7 billion from WaMu accounts since Sept. 16, leaving the Seattle-based bank “unsound,” the Office of Thrift Supervision said today. WaMu’s branches will open tomorrow and customers will have full access to all their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said on a conference call.

“JPMorgan is getting a steal compared with what they were going to pay,” said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, California, which owns WaMu shares. “It’s very tragic.”

WaMu collapsed as its credit rating was slashed to junk and its stock price tumbled. Facing $19 billion of losses on soured mortgage loans, the lender put itself up for sale last week after firing CEO Kerry Killinger this month. The bank named Alan Fishman as his replacement on Sept. 8, agreeing to pay him a $7.5 million signing bonus and $1 million salary.

JPMorgan won’t acquire WaMu’s liabilities, including claims by shareholders and subordinated and senior debt holders, the FDIC said.

The consolidation continues. Any bets on who’s next?