'Too Big to Fail' Is Too Hot to Handle

Includes: BAC, C, JPM, STSA, UCBH, WFC
by: Richard Suttmeier
Do we need to resolve the “Too Big To Fail” mantra?
Sheila Bair, FDIC Chair, wants the banks with assets of at least $10 billion (there are 117 such banks) to pre-fund a Financial Company Resolution Fund (FCRF). Bair thinks that this fund is necessary to remove the mantra of being “too big to fail”. Treasury Secretary Geithner wants taxpayers to cover a Systemic Risk Failure and then have the surviving big banks repay taxpayers over time. Both ideas are awful!
Our regulators do not understand the unintended consequences – Here are a few:
There are two Deadbeat Banks with assets move than $10 billion that have reneged on TARP Dividend payments in May and August? Sterling Financial (NASDAQ:STSA) and UCBH Holdings (UCBH) are on the ValuEngine List of Problem Banks.
There are 26 banks on the ValuEngine List of Problem Banks with more than $10 billion in assets. These banks should be required to bring their C&D and CRE exposures within the ignored regulatory guidelines, as they are on my short list for Systemic Failure.
If I was on the Board of a bank with $10 to $12 billion in assets, I would advise the bank to downsize to have assets below $10 billion. If I was on the Board of one of the 30 banks with $7 billion to $10 billion in assets I would avoid helping the FDIC resolve bank failures and not seek purchasing another bank, so the bank can stay below the $10 billion asset line.
Pre-funded or post-funded assessments are a tax on earnings that must be passed onto customers in the form of tighter lending standards and fees.
Banks with $10 to $50 billion in assets should be left alone.
There are 34 banks with assets of more than $50 billion. Citigroup (NYSE:C), Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) should be forced to have higher capital requirements as their assets exceed $1 trillion each.
Away from the Big Four, the FDIC should form a consortium of at least twelve banks with at least $50 billion in assets as Primary Bankers to help facilitate the 500 to 800 bank failures I expect by the end of 2012.
33 FDIC-Insured Banks reneged on August TARP Payments
The number of Deadbeat Banks increased by 18 in August, more than double the 15 in arrears for May.
Under the Capital Purchase Program of TARP, banks are required to pay a dividend of 5% per year for the first five years. The next Dividend payment is set for November 15. There are 23 Deadbeat Banks that are on the ValuEngine List of Problem Banks. Let’s tighten the rules here!
Another Sign of Recession - There are now 18.8 million vacant homes in the United States, as banks continue to seize properties from delinquent dwellers.
Disclosure I Hold No Positions in the Stocks I Cover.