Anybody who reads this blog with some frequency will notice that I in general am a big fan of blogger Matt Yglesias and his work. That said, I have some deep disagreements with him about his latest article about bank dividends.

The final paragraph really sums up some of the concerns he has been blogging about in regards to the solvency of the finance industry.

Yglesias:*

But my point—following Admati and Hellweg—is that regulators shouldn’t just look over JP Morgan’s shoulders and second-guess its investment decisions. Regulators shouldn’t let JP Morgan go so deeply into debt. Or, rather, given that JP Morgan is already deeply in debt they should make it get out of debt. Which shouldn’t be difficult. JP Morgan is profitable. Those profits can be used to pay dividends to JP Morgan shareholders. But they could also be used to reduce JP Morgan’s level of indebtedness. Then JP Morgan managers would be playing less with creditors’ money and more with shareholders’ money. That would make it much less likely that any given bad trade would lead to a bankruptcy scenario. It would let us worry less about second-guessing JP Morgan’s trades, and just be more confident that whether or not they screw up the financial system can stay strong and steady. And contrary to banker myth, blocking banks from becoming so indebted wouldn’t reduce their ability to lend—it would reduce their ability to return profits to shareholders.

*emphasis mine.

Yglesias wishes that regulators (the OCC the CFPB or the FDIC) could force a bank to become less indebted. Except that they already do this!

Banks can be issued issued things called, “consent orders“. Basically what these do is state to the public that the offending bank has been notified that it’s behavior in lending or management of funds has been outside the accepted practice for a lending institution, and that they have a certain amount of time to complete a redress of these offenses. In the most severe cases, banks are banned from providing new credit to borrowers until their existing booked loans are up to snuff. That the regulatory bodies of the United States chose not to do this with JP Morgan is an entire issue in it’s own right; however, let’s not act as though those powers are not totally within the wheelhouse of the regulatory officials.

Further, in my opinion, there are ‘banks’ and then there are ‘Banks’. (notice the capitalization).  Small instituions like thrifts (formerly saving and loan associations) or small commercial banks should be talked about differently than the larger ‘Banks’, ie JP Morgan, Wells, BofA et al. Larger banking houses tend to have a larger portfolio and balance sheet because they use many more financial tools and do much more trading with much more sophisticated instruments that require  a lot of supervision (hence the OCC).

Whereas, if a small commercial bank, “Mom & Pop Local Bank” as Yglesias uses in his example, were to give out dividends to stock owners of the bank, and the bank is in a reasonably healthy position then why shouldn’t it make use of the extra cash on hand. Part of keeping the confidence of investors to me seems that investors like knowing they’ll get at least the money they put in the bank back, but that they see a return on that investment. Otherwise, why put the cash in banks at all? Why not invest in another company or industry? Because returns on stock bolsters confidence. Granted, banks shouldn’t always do this, regardless of size, but to be opposed in principle of the idea that people don’t get a dividend despite investing seems a little off to me.

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Krugman adds it up.

Money quote:

These aren’t paper losses like the wealth lost when the dot-com or housing bubble collapsed, wealth that was never real in the first place. We’re talking here about valuable products that could and should have been manufactured but weren’t, wages and profits that could and should have been earned but never materialized. And that’s $5 trillion, or $7 trillion, or maybe even more that we’ll never get back.

Press Release

Banesco USA, Coral Gables, Florida, Assumes All of the Deposits of Security Bank, National Association, North Lauderdale, Florida 

FOR IMMEDIATE RELEASE
May 4, 2012
Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

 

Security Bank, National Association, North Lauderdale, Florida, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Banesco USA, Coral Gables, Florida, to assume all of the deposits of Security Bank, National Association.

The three branches of Security Bank, National Association will reopen on Monday as branches of Banesco USA. Depositors of Security Bank, National Association will automatically become depositors of Banesco USA. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Security Bank, National Association should continue to use their existing branch until they receive notice from Banesco USA that it has completed systems changes to allow other Banesco USA branches to process their accounts as well.

This evening and over the weekend, depositors of Security Bank, National Association can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of March 31, 2012, Security Bank, National Association had approximately $101.0 million in total assets and $99.1 million in total deposits. In addition to assuming all of the deposits of the failed bank, Banesco USA agreed to purchase essentially all of the assets.

Customers with questions about today’s transaction should call the FDIC toll-free at 1-800-523-8209. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; on Monday from 8 a.m. to 8 p.m., EDT; and thereafter from 9:00 a.m. to 5:00 p.m., EDT. Interested parties also can visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/securitybank.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $10.8 million. Compared to other alternatives, Banesco USA’s acquisition was the least costly resolution for the FDIC’s DIF. Security Bank, National Association is the 23rd FDIC-insured institution to fail in the nation this year, and the third in Florida. The last FDIC-insured institution closed in the state was First Guaranty Bank and Trust Company of Jacksonville, in Jacksonville, on January 27, 2012.

 

Hat tip to Cullen Roche, who put up a transcript of Krugman’s response to questions from Reddit users yesterday.

Question (Weisenthal):

Back in the 2000s, you frequently blasted Bush for running large deficits. However in recent posts and interviews, you’ve said that a country with its own sovereign, un-pegged currency can’t ever face bond vigilantes.

What’s more, the sovereign currency issue seems to be something of a new line of thinking for you, given that initially you wondered why Italy and Japan were paying different rates given broadly similar economic conditions. Now you seem to have found peace with that question, based on the sovereign currencies issue.

Thus in light of this change of thinking, do you still stand by your comments regarding Bush’s deficits?

Answer (nytimeskrugman):

I was clearly too worried about bond vigilantes back in 2003 — and I’ve written on my blog conceding that mistake.

I wasn’t wrong, however, to condemn the Bush deficits. Deficits serve a useful function when the economy is deeply depressed, and in particular when monetary policy is up against the zero lower bound. You should not gratuitously increase debt in normal times, when any fiscal stimulus can and will be offset by Fed policy.

And don’t you wish now that we hadn’t run those unfunded wars and tax cuts? The ratio of debt to GDP would be 20 or 25 percentage points lower, and we’d be feeling a lot more relaxed about current deficits.

Roche disagrees with Krugman’s view of the aughts. He argues the deficits that ran during the Bush II era contributed to high growth. I think the truth is somewhere in the middle. Lower taxation policy probably had an impact on the periphery of job creation, but the deficits that Bush ran really don’t seem to have pointed goal. Cutting taxes on higher earners helped higher earners keep cash in their pockets, but cutting taxes while running up expenses in military armament and lowering trade doesnt seem to be an effective manner to pursue ‘smaller government’

Press Release

Pacific Premier Bank, Costa Mesa, California, Assumes All of the Deposits of Palm Desert National Bank, Palm Desert, California 

FOR IMMEDIATE RELEASE
April 27, 2012
Media Contact:
LaJuan Williams-Young
Office: 202-898-3876
Email: lwilliams-young@fdic.gov

 

Palm Desert National Bank, Palm Desert, California, was closed today by the Office of the Comptroller of the Currency (OCC), which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Pacific Premier Bank, Costa Mesa, to assume all of the deposits of Palm Desert National Bank.

The sole branch of Palm Desert National Bank will reopen on Monday as a branch of Pacific Premier Bank. Depositors of Palm Desert National Bank will automatically become depositors of Pacific Premier Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Palm Desert National Bank should continue to use their existing branch until they receive notice from Pacific Premier Bank that it has completed systems changes to allow other Pacific Premier Bank branches to process their accounts as well.

This evening and over the weekend, depositors of Palm Desert National Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2011, Palm Desert National Bank had approximately $125.8 million in total assets and $122.8 million in total deposits. In addition to assuming all of the deposits of the failed bank, Pacific Premier Bank agreed to purchase essentially all of the assets.

Customers with questions about today’s transaction should call the FDIC toll-free at 1-800-591-2820. The phone number will be operational this evening until 9:00 p.m., Pacific Daylight Time (PDT); on Saturday from 9:00 a.m. to 6:00 p.m., PDT; on Sunday from noon to 6:00 p.m., PDT; on Monday from 8 a.m. to 8 p.m., PDT; and thereafter from 9:00 a.m. to 5:00 p.m., PDT. Interested parties also can visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/palmdesert.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $20.1 million. Compared to other alternatives, Pacific Premier Bank’s acquisition was the least costly resolution for the FDIC’s DIF. Palm Desert National Bank is the 22nd FDIC-insured institution to fail in the nation this year, and the first in California. The last FDIC-insured institution closed in the state was Citizens Bank of Northern California, Nevada City, on September 23, 2011.

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FOR IMMEDIATE RELEASE
April 27, 2012
Contact: Dean DeBuck
(202) 874-5770

OCC Appoints Receiver for Plantation Federal Bank, Pawleys Island, SC

WASHINGTON — The Office of the Comptroller of the Currency (OCC) today appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for Plantation Federal Bank, Pawleys Island, SC, a federal savings association. As of December 31, 2011, the institution had approximately $486.4 million in total assets.

The OCC acted after finding that the institution had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices. The OCC also found that the institution is likely to incur losses that will deplete its capital, the institution is critically undercapitalized, and there is no reasonable prospect that the institution will become adequately capitalized without federal assistance.

The FDIC will release information about the resolution of the institution.

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Press Release

Great Southern Bank, Reeds Spring, Missouri, Assumes All of the Deposits of Inter Savings Bank, fsb D/B/A Interbank, fsb, Maple Grove, Minnesota 

FOR IMMEDIATE RELEASE
April 27, 2012
Media Contact:
LaJuan Williams-Young
Email: lwilliams-young@fdic.gov

 

Inter Savings Bank, fsb D/B/A InterBank, fsb, Maple Grove, Minnesota, was closed today by the Office of the Comptroller of the Currency (OCC), which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Great Southern Bank, Reeds Spring, Missouri, to assume all of the deposits of InterBank, fsb.

The four branches of InterBank, fsb will reopen on Monday as branches of Great Southern Bank. Depositors of InterBank, fsb will automatically become depositors of Great Southern Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of InterBank, fsb should continue to use their existing branch until they receive notice from Great Southern Bank that it has completed systems changes to allow other Great Southern Bank branches to process their accounts as well.

This evening and over the weekend, depositors of InterBank, fsb can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2011, InterBank, fsb had approximately $481.6 million in total assets and $473.0 million in total deposits. In addition to assuming all of the deposits of the failed bank, Great Southern Bank agreed to purchase essentially all of the assets.

The FDIC and Great Southern Bank entered into a loss-share transaction on $413.0 million of InterBank, fsb’s assets. Great Southern Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit:http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers with questions about today’s transaction should call the FDIC toll-free at 1-800-405-8357. The phone number will be operational this evening until 9:00 p.m., Central Daylight Time (CDT); on Saturday from 9:00 a.m. to 6:00 p.m., CDT; on Sunday from noon to 6:00 p.m., CDT; on Monday from 8 a.m. to 8 p.m., CDT; and thereafter from 9:00 a.m. to 5:00 p.m., CDT. Interested parties also can visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/Interbank.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $117.5 million. Compared to other alternatives, Great Southern Bank’s acquisition was the least costly resolution for the FDIC’s DIF. InterBank, fsb is the 20th FDIC-insured institution to fail in the nation this year, and the third in Minnesota. The last FDIC-insured institution closed in the state was Home Savings of America, Little Falls, on February 24, 2012.

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Press Release

First Federal Bank, Charleston, South Carolina, Assumes All of the Deposits of Plantation Federal Bank, Pawleys Island, South Carolina 

FOR IMMEDIATE RELEASE
April 27, 2012
Media Contact:
LaJuan Williams-Young
Office: 202-898-3876
Email: lwilliams-young@fdic.gov

 

Plantation Federal Bank, Pawleys Island, South Carolina, was closed today by the Office of the Comptroller of the Currency (OCC), which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First Federal Bank (formerly known as First Federal Savings and Loan Association of Charleston), Charleston, South Carolina, to assume all of the deposits of Plantation Federal Bank.

The six branches of Plantation Federal Bank will reopen on Monday as branches of First Federal Bank, including the three branches operating under the name of First Savers Bank. Depositors of Plantation Federal Bank will automatically become depositors of First Federal Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Plantation Federal Bank should continue to use their existing branch until they receive notice from First Federal Bank that it has completed systems changes to allow other First Federal Bank branches to process their accounts as well.

This evening and over the weekend, depositors of Plantation Federal Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2011, Plantation Federal Bank had approximately $486.4 million in total assets and $440.5 million in total deposits. In addition to assuming all of the deposits of the failed bank, First Federal Bank agreed to purchase essentially all of the assets.

The FDIC and First Federal Bank entered into a loss-share transaction on $221.7 million of Plantation Federal Bank’s assets. First Federal Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit:http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers with questions about today’s transaction should call the FDIC toll-free at 1-800-640-2538. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; on Monday from 8 a.m. to 8 p.m., EDT; and thereafter from 9:00 a.m. to 5:00 p.m., EDT. Interested parties also can visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/plantation.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $76.0 million. Compared to other alternatives, First Federal Bank’s acquisition was the least costly resolution for the FDIC’s DIF. Plantation Federal Bank is the 21st FDIC-insured institution to fail in the nation this year, and the first in South Carolina. The last FDIC-insured institution closed in the state was BankMeridian, N.A., Columbia, on July 29, 2011.

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Press Release

Sonabank, McLean, Virginia, Assumes All of the Deposits of HarVest Bank of Maryland, Gaithersburg, Maryland 

FOR IMMEDIATE RELEASE
April 27, 2012
Media Contact:
LaJuan Williams-Young
Office: 202-898-3876
Email: lwilliams-young@fdic.gov

 

HarVest Bank of Maryland, Gaithersburg, Maryland, was closed today by the Maryland Commissioner of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Sonabank, McLean, Virginia, to assume all of the deposits of HarVest Bank of Maryland.

The four branches of HarVest Bank of Maryland will reopen during normal business hours as branches of Sonabank. Depositors of HarVest Bank of Maryland will automatically become depositors of Sonabank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of HarVest Bank of Maryland should continue to use their existing branch until they receive notice from Sonabank that it has completed systems changes to allow other Sonabank branches to process their accounts as well.

This evening and over the weekend, depositors of HarVest Bank of Maryland can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2011, HarVest Bank of Maryland had approximately $164.3 million in total assets and $145.5 million in total deposits. In addition to assuming all of the deposits of the failed bank, Sonabank agreed to purchase essentially all of the assets.

Customers with questions about today’s transaction should call the FDIC toll-free at 1-800-523-8275. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; on Monday from 8 a.m. to 8 p.m., EDT; and thereafter from 9:00 a.m. to 5:00 p.m., EDT. Interested parties also can visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/harvest.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.2 million. Compared to other alternatives, Sonabank’s acquisition was the least costly resolution for the FDIC’s DIF. HarVest Bank of Maryland is the 19th FDIC-insured institution to fail in the nation this year, and the second in Maryland. The last FDIC-insured institution closed in the state was Bank of the Eastern Shore, Cambridge, earlier today.

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Press Release

Alma Bank, Astoria, New York, Assumes All of the Deposits of Fort Lee Federal Savings Bank, FSB, Fort Lee, New Jersey 

FOR IMMEDIATE RELEASE
April 20, 2012
Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

 

Fort Lee Federal Savings Bank, FSB, Fort Lee, New Jersey, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Alma Bank, Astoria, New York, to assume all of the deposits of Fort Lee Federal Savings Bank, FSB.

The sole branch of Fort Lee Federal Savings Bank, FSB will reopen on Saturday as a branch of Alma Bank. Depositors of Fort Lee Federal Savings Bank, FSB will automatically become depositors of Alma Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Fort Lee Federal Savings Bank, FSB should continue to use their existing branch until they receive notice from Alma Bank that it has completed systems changes to allow other Alma Bank branches to process their accounts as well.

This evening and over the weekend, depositors of Fort Lee Federal Savings Bank, FSB can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2011, Fort Lee Federal Savings Bank, FSB had approximately $51.9 million in total assets and $50.7 million in total deposits. Alma Bank will pay the FDIC a premium of 1.85 percent to assume all of the deposits of Fort Lee Federal Savings Bank, FSB. In addition to assuming all of the deposits of the failed bank, Alma Bank agreed to purchase approximately $15.7 million of the failed bank’s assets. The FDIC will retain the remaining assets for later disposition.

Customers with questions about today’s transaction should call the FDIC toll-free at 1-800-430-8098. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; on Monday from 8 a.m. to 8 p.m., EDT; and thereafter from 9:00 a.m. to 5:00 p.m., EDT. Interested parties also can visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/fortlee.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $14.0 million. Compared to other alternatives, Alma Bank’s acquisition was the least costly resolution for the FDIC’s DIF. Fort Lee Federal Savings Bank, FSB is the seventeenth FDIC-insured institution to fail in the nation this year, and the first in New Jersey. The last FDIC-insured institution closed in the state was First State Bank, Cranford, on October 14, 2011.

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FOR IMMEDIATE RELEASE
April 20, 2012
Contact: Dean DeBuck
(202) 874-5770

OCC Appoints Receiver for Fort Lee Federal Savings Bank

WASHINGTON — The Office of the Comptroller of the Currency (OCC) today appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for Fort Lee Federal Savings Bank, Fort Lee, New Jersey, a federal savings association. As of December 31, 2011, the institution had approximately $51.9 million in total assets.

The OCC acted after finding that the institution had experienced substantial dissipation of assets and earnings due to unsafe or unsound practices. The OCC also found that the institution incurred losses that depleted its capital, the institution is critically undercapitalized, and there is no reasonable prospect that it will become adequately capitalized without federal assistance.

The FDIC will release information about the resolution of the institution.

Yglesias posted a really great reassessment of economist Simon Kuznet’s apocryphal statement about the four types of world economies.

Money quote:

China is so large and was formerly so poor that its advance from poverty-stricken to low-middle-income has really fueled the worldwide growth picture. At the same time, its per capita GDP is still only half of Argentina’s and whatever you might say about Argentine political dysfunction and lack of strong property rights it’s not a dictatorship run by the Communist Party with little pictures of Mao Zedong on its money. It’s actually extremely understandable that people would like to avoid the kind of “exproportion risk” involved in keeping all your eggs in that particular basket. Yet at the same time if you could somehow ignore these risks, China seems like the place where the good investment opportunities are. The combination of the two can tie the worldwide flow of capital into knots.