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Recent FDIC Actions Are Worrisome Sign of the Times

Reading industry tea leaves? Here are two more: the Fed is planning to hire up to 140 new staffers for its Division of Resolutions and Receiverships

By Erika Morphy | Updated on April 06, 2008

Local law firm Venable LLP has pointed out two little-noticed signs that the government is taking aggressive measures to buttress a clearly overstressed financial system. One is the Federal Deposit Insurance Corp.’s recently announced plans to beef up the group that manages assets from failed banks by as much as 60%. The Division of Resolution and Receiverships will expand by a 140-person headcount. The second is the FDIC’s “prompt corrective action” notice delivered last week to Fremont General, a 22-branch California-based bank that at one time was country’s fourth largest sub-prime borrower. Today, it is literally running out of capital. Fremont has 60 days to raise its capital or, under the notice, will be forced to sell.

Both steps augur poorly for the capital markets in the near to mid term – not that further confirmation that there are hidden problems in the system was required. Venable West Coast financial services partner Joseph Lynyak notes that there have been virtually no bank failures for the last decade. The FDIC, he speculates, is concerned about having enough resources in place as the financial services industry enters a new and difficult cycle.

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