FDIC Has No Money To Nationalize Others’ Dirty Underwear

Quite a dilemma; is the bottom line that the government simply can’t afford to nationalize a bank as large as Citi?

In yet more rhetoric that the FDIC will not, and has no money to, nationalize big banks, Sheila Bair said in prepared remarks earlier, and quoted by Bloomberg, that she would be surprised if the U.S. can actually do the right thing in this current environment.

“I don’t see the U.S. government operating a large institution for an extended period. U.S. regulators are committed to preserve the viability of systemically important financial institutions through capital injections and supervision. I would be surprised if the FDIC had to step in as conservator or receiver of a large, systemically important institution."

We would be even more surprised if the FDIC had any clue what it was talking about. However, much more relevantly, Bair admitted there is simply not enough cash to nationalize a Citi caliber bank.

Taking over a major bank would “present significant challenges” because there’s no process in place for winding down a large financial holding company with multiple affiliates, Bair said.

There’s also “a very real question” as to whether the FDIC has the funds “to deal with the failure of a very large institution,” Bair said in her speech at the Institute of International Bankers conference.

The agency is limited to building up its deposit insurance fund through fees it charges insured banks.

“This is something we are trying to get fixed,” Bair said.

This is all one needs to know to quell any future nationalization discussions: when the government itself admits it can not afford to nationalize a Citi or BofA type bank pretty much nuf is said.