Interesting news about the Obama's administrations attempts to gain powers from congress to place hedge fund and insurance company's into recievership. Their plan now includes the FDIC taking complete control of those companies on the word of the Federal Reserve as well as the President and Treasurary Secretary.
I made a previous diary about the difficulty that the FDIC had in seizing banks that are also part of much larger conglomerates and holding companies. As Sheila Bair pointed out about why the FDIC had not seized these banks:
In the case of a bank holding company, the FDIC has the authority to take control of only the failing banking subsidiary, protecting the insured depositors. However, many of the essential services in other portions of the holding company are left outside of the FDIC's control, making it difficult to operate the bank and impossible to continue funding the organization's activities that are outside the bank. In such a situation, where the holding company structure includes many bank and non-bank subsidiaries, taking control of just the bank is not a practical solution.
Sheila Bair
It seems the adminstration is hearing Bair's concerns and are now pressing for the FDIC to take control of those companies and banks that are in the process of failing.
From the Washington Post:
Under current law, the government can only seize banks. The legislation would extend that authority to companies that own banks, and other financial businesses such as insurers, investment houses and hedge funds.
The Federal Reserve Board, along with any agency overseeing the troubled company, would recommend the need for a seizure. The Treasury secretary then would authorize the action in consultation with the president and the firm would be placed under the control of the Federal Deposit Insurance Corp.
One of the big problems here is that Congress is uneasy about giving this power to the Treasury and Federal Reserve Board, and I think they have a good point on that as Treasury is a political body and I wouldn't really feel comfortable with that. Not to mention to have the Federal Reserve be the first alarm system on this when they have messed up the duties they already have doesn't give me the biggest confidence in this regard.
But giving these companies to FDIC is a big deal as it places those companies in the arms of an agency that is pretty good at recievership and know how to break down banks and sell them off, which means this is a really big step towards temporary nationalization of big banks.
One of the problems, as the Post points out is how to pay for companies to go into recievership:
The cost of bank failures is carried by the industry, which pays assessments to the FDIC. Treasury said it has not yet determined how to pay for seizures under the proposed system. Possibilities include dunning taxpayers or collecting fees from all institutions the government considers possible candidates for seizure.
This would be an expensive undertaking and not easy to boot but I think it is a good idea for the FDIC to have these powers. This, in fact, would the biggest expansion of that agency's power since it was created. It will be interesting to see how the agency adjust to these hybrid banks if they get the power from congress.