Ok logically it makes little sense for the FDIC to seize a bank for deposit flight since it is the deposits that they are insuring. 100 billion in deposits leaving the bank LOWERS the risk to the insurance fund.
Secondly, most of the potential bidders for the bank were just involved in the effort to help them increase their deposits and those deposits were uninsured so again didn’t represent a risk to the insurance fund.
Approximately 70 billion in insured deposits remained secured by 240 billion in assets almost all if which could be liquidated.
JPM was allowed to buy the bank in violation of the law in a rushed manner with no immediate risks to the insurance fund. Plus on top of it the insurance fund took an 18 billion dollar hit and allowed a large creditor to pick and choose what assets they would like to keep.
Their book of loans had a .06 default rate. 6/100ths of 1 percent! Essentially the FDIC handed JPM billions of dollars for free.
There should be lawsuits and an investigation here. But the biggest issue is that if FDIC is going to act arbitrarily and gift billions of dollars in assets to large banks, no bank is safe from arbitrary takeover.
JPM wanted those assets and the government let them essentially steal them.
Also how exactly is this deposit flight new information to the FDIC? The entire purpose of the FED borrowing facility was for FRC to be able to borrow against their assets so that they wouldn’t have to sell them. The FED offered that option in RESPONSE TO DEPOSIT FLIGHT at all regional banks. So FRC uses the discount window provided by one part of the government then gets seized by another part. FDIC was monitoring the situation the entire time. So they were aware down to the dollar exactly how much FRC had in deposits a month ago when deposit flight started to stabilize. They had 46 billion in cash.
So if having 70 billion dollars in insured deposits allows the government to seize 240 billion dollars in assets isn’t the real risk being FDIC insured if I am a shareholder in a bank? Could FDIC seize a bank if it has 1 billion in insured deposits and 100 billion in assets? Does the FDIC employ accounting firms? How is taking an 18 billion dollar loss to protect 70 billion in insured deposits the lowest risk to the insurance fund when the bank has 240 billion in Treasury bonds and other liquid assets? It’s absurd.