Friday, January 6, 2012

Could Bank of America Survive a Deposit Run in 2012?


Forbes writes: With year-end predictions providing so much food for thought, here’s a chaotic possibility to consider: What would happen if Bank of America (BAC) were to suffer a run on deposits?

While most of the discussion on regulatory reform in the wake of the banking crisis of 2008 has focused on capital strength, lending standards and mortgage loan servicing, it’s liquidity problems that can quickly kill a bank. We saw that with Lehman Brothers, which relied on short-term funding before it went bankrupt in September 2008, with Barclays (BCS) and Nomura Holdings (NMR) feeding off the carcass. Amid its own liquidity crisis, the well-capitalized Bear Sterns had avoided bankruptcy in March 2008, when the Federal Reserve facilitated a quick sale of the firm to JPMorgan Chase (JPM).

Liquidity concerns were also at the forefront of the decision by the Office of Thrift Supervision — with prodding form the Federal Deposit Insurance Corp. — to shutter Washington Mutual in September 2008, which was sold by the FDIC to JPMorgan Chase. During the final weeks before it became the largest bank or thrift to fail in U.S. history, Washington Mutual was offering rates for six-month CDs that were twice the national average…..

Read more at http://www.forbes.com/sites/thestreet/2011/12/30/could-bank-of-america-survive-a-deposit-run-in-2012/

No comments:

Post a Comment