FDIC encourages pension funds to buy failed banks.

 

Here is an interesting article excerpt from Bloomberg:

March 8 (Bloomberg) -- The Federal Deposit Insurance Corp. is trying to encourage public retirement funds that control more than $2 trillion to buy all or part of failed lenders, taking a more direct role in propping up the banking system, said people briefed on the matter.

Direct investments may allow funds such as those in Oregon, New Jersey and California to cut fees for private-equity managers, and the agency to get better prices for distressed assets, the people said. They declined to be identified because talks with regulators are confidential.

Oregon’s retirement fund may contribute $100 million as regulators seek “the support of state pension funds to solve the crisis surrounding ongoing bank failures,” Jay Fewel, a senior investment officer at the Oregon State Treasury, said in a presentation at the fund’s Feb. 24 meeting. New Jersey’s fund may also participate, said Orin Kramer, chairman of New Jersey’s State Investment Council.

The FDIC shuttered 140 lenders last year and expects the tally may be higher in 2010. Regulators have avoided signing up private-equity firms as rescuers on concern that they might take too much risk. Pension funds, whose 100 largest members manage $2.4 trillion, could provide capital to acquire deposits and outstanding loans from collapsed banks, according to the people.

Welcome Mat

“The FDIC is constantly looking at structures where we can get the greatest opportunity to tap into capital that we have not had the success reaching through previous disposition methods,” FDIC spokeswoman Michele Heller said in an e-mailed statement. “We welcome and work with all investors.”

Current rules don’t prohibit pension funds from buying failed banks. Until now, they have typically chosen to invest through private-equity firms using limited partnerships, which gives pension funds little to no control over the day-to-day management of the investments. They also pay management fees levied on the amount of money committed as well as a percentage of any profit.

“We’ve been examining a broad range of alternatives to take advantage of what I believe are attractive transactions coming out of the FDIC,” said New Jersey’s Kramer. The state pension system faced a shortfall of about $46 billion as of last year because of investment declines and a failure to make full contributions, according to annual financial reports.

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OK, so the FDIC is running out of money (this might be a good time to mention that the top 25,000 bankers in the U.S. received bonuses averaging $308,000.00) and now wants to make it easier for the average American to lose their retirement savings. Who bails out the pension funds?

 

If you can't see the handwriting on the wall by this point, there is no hope for you.