FDIC takeover of bank

On Dec 8, 10:29 am, "Gil Faver" X).

The FDIC's goal is to insure existing deposits, not the future obligations of a failed bank. Furthermore, requiring the purchasing bank (Essex, in this case) to take on the failing bank's obligations would be a hinderance to the liquidity/buy-out process and not in the best interest of the FDIC or the American taxpayer.

By the by, fixed annuity rates have recently crested over 6%. All 50 states (I believe) have annuity guaranty agencies that operate similar to the FDIC. Depending on your liquidity and time horizon, that may be a viable alternative. Or not.

On Dec 8, 5:43 pm, "Gil Faver" rate.  0.25%?  Someone is not going to notice and get screwed.

I think paragraphs 2-4 in my above post explain the logic behind NOT continuing the current rate.

I too am a bit surprised they didn't just liquidate. When Indymac went under earlier this year I had 1 client (spouses) that held their CDs in a brokered format. Their statement showed $0.00 for three weeks until the FDIC claim went through, after which they had their prior balance back in cash.

Perhaps it has something to do with the manner in which the FDIC "bailed out" the bank. I found "wevidence" that the failure cost the FDIC about $200-$240M, but from the quoted wording in your post, it seems that Essex is responsible for the CDs, not the FDIC. Perhaps that is significant.

IMO, if someone doesn't notice, maybe they need to get screwed. Getting a crappy interest rate is a lot less painful a lesson than investing, say, entirely in Fannie Mae bonds or having your entire nest egg in company stock (i.e. Enron). If investors can't stay on top of a simple matter like this, then perhaps they ready to be investing on their own. Also remember that Essex Bank has a fiduciary obligation to its shareholders to act in their best interest. I don't see how babysitting/handholding oblivious and/or ignorant investors fits that goal. Gil, just be thankful that you have the financial savvy to efficiently handle matters like these.

That should be "they're NOT ready to be investing on their own". Sorry.

yeah, I got that. I just don't think dropping the rate to 0.25% when the acquiring bank is issuing CDs at a higher rate is "right". I wonder if that is an FDIC policy, or the acquiring banks. This is my first instance of an FDIC takeover.

On Dec 9, 10:16 am, "Gil Faver" acquiring bank is issuing CDs at a higher rate is "right".  I wonder if that

I agree that it's not a very polite thing to do, but at some point people gotta look after themselves to some extent.

More to the point, I'm not positive, but I think it is the action of the acquiring bank, not the FDIC. I dealt with the Indymac buy-out and this didn't occur. In that instance the FDIC simply issued a check the same as your car insurer would. Those were also brokered CDs.

"Gil Faver" when the acquiring bank is issuing CDs at a higher rate is "right".

Nevertheless, by offering folks full, penalty-free redemption, effectively they are offering folks the new bank's standard CD rate - if they want. Folks who aren't vigilant, of course, are going to get a crappy rate, but they are still getting all their money back and overall, it's not a terrible situation for them.

I didn't notice in your original posting, but I remember you saying you had a *brokered* CD held there. I wonder if they treated direct CD clients the same way as they are treating the brokered ones. I figure, again, that brokered clients are assumed to be a little more sophisticated, and more capable of easily taking the liquidation and putting it into a new other CD.

If I remember correctly from a previous bit of research about FDIC takeovers, direct CD clients usually get immediate/continuing access to their assets while the brokered clients often have their assets tied up for a couple of weeks while the situation gets resolved.

So why is there a "window of opportunity"? Why not let anyone who wasn't paying attention to bail out of the CD with the new, crappy rate, whenever they become aware of it?

I bet they treat brokered CD holders as second class citizens, as they are likely to not be local, repeat customers; and not full service customers, with checking accounts, etc. who also went for a CD.

I recall seeing this as well, but obviously not the case here.

and thus, they can assume I am not a local, repeat customer.

so, would they drop the rate to near zero, and then not allow immediate access? Or would they honor the rate, or institute a new, realistic rate, as they deny immediate access to the funds?

No "financial advisor" in any bank I have dealt with has ever recommended any fund other than that banks own funds.

Sickening isn't it.