Show i ZZ3 announcement would stress the cooperative nature of the bailout The deal would have to be announced by 10 am the next day— when trading in Continental stock would be stopped Without some announcement William Isaac warned all hell would break loose once the stock trading was halted Citibank threw a monkey wrench into the arrangement in the late afternoon insisting that the FDIC guarantee that the banks wouldn't lose a nickel of their contribution Isaac and Volcker protested that this would expose the whole cooperative deal as a baud Isaac thought everything was set when he checked become more rather than less likely since 1984 1 believe the millions of Americans who keep their life savings in banks have the right to know whether their money is safe Just how serious is the banking crisis and could individual depositors lose their savings? From my inside sources and the evidence they have shown me I have compiled some answers: Why are banks failing? The relaxation of government controls tempted many bank managers to take rides for quick profits They ventured onto thin financial ice granting loans in boom times based more on hope than collateral Unhappily many loans went bad as agriculture energy and real estate prices fell What You Gan Do To Safeguard Your Deposit Given today’s economic uncertainties how can you tell whether your bank is in trouble? Then what can you do to safeguard your deposit ? If your bank is federally insured regulators keep a close watch on its books but they can’t tell you what they find It’s against die law for a government official or bank director to divulge the contents of federal examination reports But here's what you should watch for Beware of high interest rates If your bank offers et interest rates it could mean that it is short of funds and in failing condition Keep your money in a federally insured bank Its deposits are protected by the Federal Deposit Insurance Carp which has $184 billion to back its guarantees In contrast the Federal Savings and Loan Insurance Carp is down to about $500 million which is all it has to back about $900 billion in savings-and-lo- an deposits Never allow your account to exceed die federal deposit limit of$100000 Any amount over $100000 ’ is not covered by federal insurance Don’t gamble on privately insured batiks thrifts 'and credit unions hybrid depositories known as industrial banks investment companies even insurance funds Depositors in these institutions have sometimes lost money If you choose your bank carefully and handle your account prudently your money should be safe No one ever has lost a nickel from a federally insured deposit above-the-mark- state-authoriz-ed ContiMitai HUmIs National Bank ft Trust C sf Chicago: Behind the ssBd front was a shaky saipfra into a hotel at 11 that night But at 4 am he was awakened by his staff: Citibank's objections were wrecking everything he was told Isaac rushed to the FDIC's regional office on Fifth Avenue where the negotiators were meeting— only to find that he was locked out Trying a side entrance Isaac brushed past a protesting guard and rode the escalator to the conference room where unshaven hollow-eye- d lawyers were waiting in despair Citibank wouldn't budge even after an urgent phone call to its chairman from Volcker The deadline was approaching and the deadlock appeared unbreakable At precisely 10 am Isaac walked into the room where the bankers were caucusing “Continental has just suspended trading on its stock" he said 1 have to make an announcement Have you got it resolved yet? Is everybody in the deal except Citibank?" Yes Isaac then demanded to know if all would honor their commitments even if Citibank stayed out The other bankers agreed Eventually Citibank came in and the most serious banking crisis in SO yean was ended No one wants to replay it— not ever What almost happened to Continental Illinois has PARADE MAGAZINE ‘SEPTEMBER 20 1007 PAGE IS Bank deregulations also encouraged inexperienced entrepreneurs to form banks Some of these new banks were simply mismanaged How many major banks are on the endangered list? Six of the top 25 banks including two in the top 10 made the problem list in 1986 These six institutions in danger of failing comprise nearly 7 percent of all America's banking assets Why are so many big banks in trouble? countries known to bankers by the dread initials LDC have run up staggering loans that they cannot pay off The LDCs don't want to default on their loans because it would wipe out their credit Then they would be forced to pay cash for imports they can't afford but continue to purchase The hanks don't have the cash to cover die enormous losses Should the LDCs start to default it would be a staggering blow that could ruin the banks So both bankers and borrowers go on pretending these bad loans are good The LDCs merely pay interest on their loans often borrowing more money to make the payments A few even have slopped paying interest and some banks have started cautiously to write off foreign loans But the problem has become far too Less-develop- ed massive for conventional solutions Still the authorities continue to defer reality How much money do LDCs owe to banks? A stupendous total of $400 billion Which banks are stuck with the worst loans? 1 have seen studies of the Latin American debt The ratios exceed 100 figures show that percent for Bank America Chase Citicorp Chemical and Manufacturers Hanover If the LDCs should ever acknowledge the truth that the loans will never be paid these financial giants would go broke loan-to-capi- What would happen if a megabank failed? Trea- sury officials believe it would cause a “credit implosion" The supply of credit would begin drying up Banks would have to call in loans on a massive scale triggering a domino reaction of defaults and bankruptcies Interest rates would soar beyond the reach of average borrowers The economic effects would be extreme both for the average consumer and for the large corporation Given the economic wreckage it would cause can the federal government let a megabank fail? Without notification or publicity the regulatory agencies have adopted a double standard for banks The government is not inclined to rescue the average bank if it should go broke But the authorities agree they simply can’t permit a megabank like Continental Illinois to collapse: This would snowball into an epic disaster So in the back rooms of Washington they have decreed that the megabanks must be fail-saThis means the US government will intervene — with the taxpayers' money if necessary —to keep these banks solvent How would the federal authorities handle a megabank crisis? The Federal Reserve System has “adequate powers" according to a confidential assessment to pump money into the system and to lend unlimited amounts “when that system is under stress" The Fed-eral Reserve banks hold more than $36 billion in fe Big banks haV6 unissued currency made GnOPlIIOUS stashed in the Federal SEKSfiS loans to the lieve to provide an emerIf gency transfusion more funds should be required the secret contingency plan calls for siphoning currency from healthy banks to the emergency cases But what if the contingency plan turns out to be “too little too late” to save the banking sys- - Third WnHH countries— ITlOSl OT fUn iilUiICjf sjsasus may nevep native but to nationalize the major banks A con- - be paid back tmgency plan is ready in case or such a dire emergency to do precisely that What would happen to individual bank accounts during the emergency? The government would try of course to save all bank accounts But deposits over $100000 could be lost You have no risk whatsoever if you keep your bank deposits under $100000 These accounts are federally insured which E9 means the taxpayers back them up |