For Banks, Wads of Cash and Loads of Trouble (what lies behind bank failure)

Source: New York Times

MACON, Ga. — H. Averett Walker used hot money to turn Security Bank from a sleepy Southern lender into a regional powerhouse. Darrell D. Pittard used hot money to jump-start his brand-new MagnetBank, allowing it to lend hundreds of millions of dollars even though it did not have a single drive-up window or even a customer with a checking account.

It is a formula being replicated at banks across the United States.

Rather than simply wooing local customers, they have turned to out-of-state brokers who deliver billions of dollars in bulk deposits, widely known as “hot money,” from investors nationwide. In fast-growing regions like this one in central Georgia, the money produced record bank profits and financed whole new communities, built at a phenomenal rate.

But the hot money also came with a high cost. To lure the money from brokers, banks typically had to offer unusually high rates. That, in turn, often led them to make ever riskier loans, leaving them vulnerable when the economy collapsed. Magnet failed early this year and Security Bank is barely hanging on.

Though few people have heard of it, hot money — or brokered deposits, as it is also known in the industry — is one of the primary factors in the accelerating wave of failures among small and regional banks nationwide. The estimated cost to the Federal Deposit Insurance Corporation over the last 18 months is $7.7 billion, and growing.

Hot money has bedeviled regulators for three decades and they are starting to fight back, albeit tentatively, devising new restrictions to keep the practice from taking more banks down. But in one of the hidden lobbying battles in Washington this year, the banks are pushing hard to keep the money flowing.

Read more: http://www.nytimes.com/2009/07/04/business/04brokered.h...

It just gets worse and worse.	crickets	Jul-03-09 11:53 PM	#1
Is there ANY way that these greedy bastards have NOT figured out how to steal people's $$??	bertman	Jul-04-09 12:00 AM	#2
Greedy investors making money by making sure banks fail then gov bails investor out	bjobotts	Jul-04-09 03:23 AM	#3
it seems that the show may just be starting to get GOOD...	dysfunctional press	Jul-04-09 06:12 AM	#4
played out in acts 4 or 9? k&r n/t	Po_d Mainiac	Jul-04-09 08:26 AM	#5
Interesting	susu369	Jul-04-09 09:01 AM	#6
greed....	mike_c	Jul-04-09 10:59 PM	#7