The FDIC has quietly declared war on community banking.
By Daniel at 7 November, 2009, 1:55 am
Without any official announcement they have now set 13% as the required capital ratio. Banks that have capital below that rate are being served regulatory orders to raise more capital or disappear. That’s dramatically higher than just a year ago and banks will have a hard time getting new capital fast enough. Oh, and the TARP capital isn’t good enough - they want tangible common equity that can be lost if they feel the whim to close a bank.
Earlier this year the giant banks lobbied successfully to remove mark-to-market accounting. When that changed they instantly showed lots of paper earnings and convinced the world everything was better. Immediately they touted their stock prices up and issued new shares. Operating earnings still are terrible. With that new money they are picking through the rubble of community banks who have no access to capital to match the FDIC’s new arbitrary standards. “Frankly my dear, they don’t give a @#$%&!” about rural america and small banks. These higher ratios will make banking safer (for the survivors) but this is the primary reason lending to small business is declining. The other reason is small business is scared and not asking for money for new projects. The strong borrowers are still paying off debt and the weak ones won’t be able to refinance. Look for a long slow recovery with fewer banks.
- ROC
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