The Collapse Of A Federal Deposit Insurance Corporation

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

The largest banking institution in the United States, Bank of America, has been characterized with numerous controversies in the recent past. While the institution only got bigger since the financial crisis and government intervention through bailouts, Bank of America headed towards collapse. In 2011, Bank of America experienced several protests of its branches by various groups like National People's Action, US Uncut and other progressive activists (Jaffe par, 1). These protests were fueled by the groups' anger at Bank of America's tax dodging, huge bonuses that were paid after government bailouts, foreclosures, and other harmful practices. These protests contributed to increased concerns on whether the too-big-to-fail behemoth would really collapse.

The financial industry had gone to several crises through the decades. Around 2008, Alex Preston notice that the investments banking industry was in a crisis. Big banks were closing its doors or selling out to other companies. As it was the case of the National City Corp.; the first ever American’s mortgage maker had to close its doors after taking a large amount of proprietary risk. Other big financial companies like Goldman Sachs and Morgan Stanley, to avoid having to go down the same way, became bank holding companies, which means that these companies could receive emergency federal funds.

Before the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933 and the general conception of government safety nets, the United States banking industry was quite different than it is today. Depositors assumed substantial default risk and even the slightest changes in consumer confidence could result in complete turmoil within the banking world. In addition, bank managers had almost complete discretion over operations. However, today the financial system is among the most heavily government- regulated sectors of the U.S. economy. This drastic change in public policy resulted directly from the industry’s numerous pre-regulatory failures and major disruptions that produced severe economic and social

Unbanked, as defined by the Federal Deposit insurance Corporation, or FDIC, is a Household that do not have a checking or savings account and have used alternative financial services like money order, check cashing, remittance, payday loans, etc.

The Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) were to central semi-public organizations that assisted buyers with qualifying for mortgages. The both the company failed during the year 2008 when they were left with no money and were bankrupt. Like every company they were unable to pay back the money and they were in the looking for the help of government via taxpayer’s money. Hence, after the bankruptcy of 2008, the government has utilized huge amount of the taxpayer’s money for not letting them to shutdown and recovering them.

The Federal Deposit Insurance Corporation (FDIC) is a government corporation that was established by Congress in 1933. On June 16, 1933, President Franklin Roosevelt signed an Act known as ‘The Banking Act of 1933. The act was created during the Great Recession in order to restore the trust of the public in the American banking system, due to the fact of how frequent bank runs were happening. A bank run is a result of so many people demanding to withdrawal their deposits from the Bank’s reserves, that it leads to the banks becoming insolvent and not being able to return their depositor’s money, which lead to many banks filing for bankruptcy. During this time thousands of banks failed and because of this many people lost faith in the American

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

Due to the financial disruption of the 1930s, the federal government intervened in the banking system for the sake of the banks’ depositors’ protection of their deposits. With this action, the creation of the Federal Deposit Insurance Corporation enabled stability in the economy and the shortcoming banking system during the times of the Great Depression. Still currently utilized, the FDIC ensures trust within the banking system for the reason that depositors acknowledge that their deposits are insured when banks are failing. This backbone of the economy prevents banks from failing and other financial crisis occurring, while simultaneously easing the panic of depositors. The establishment of the Federal Deposit Insurance Corporation creates

On its way to becoming the nation’s largest mortgage lender, Countrywide Financial became one of the nation’s largest business failures in history. Started in 1969 by Angelo Mozilo, and partner David Loeb, Countrywide had become the largest provider of home loans in the United States, with one in every six U.S. loans being created by Countrywide. However, according to Bethel, Countrywide’s entire operation, from its computer systems, incentive pay structure, financing arrangements, was meant to obtain maximum profits out of the mortgage lending programs no matter what the cost. Countrywide’s initial stakeholders consisted of employees, investors, regulators, clients, communities, and as well as shareholders. Furthermore, because of its

Freddie Mac Introduction The year 2007-2008 witnessed one of the most devastating economic crisis along history. Many financial institutions suffered during the crisis and even some of them completely disappeared. This paper will focus on the mortgage market meltdown, while highlighting the major downturn witnessed by Freddie Mac. Historical Background The mortgage lending industry is one of the most crucial industries in the US.

The government gave AIG a line of credit up to $85 billion in principal amount. It was a two-year term ending September 22, 2010. The line of credit had an interest rate greater than 3.5% annum. They were also required to pay an initial gross commitment fee of $1.7 million, along with an ongoing commitment fee of 8.5% annum on undrawn amounts. American International Group had to issue 100,00 shares of preferred stock, to AIG Credit Facility Trust, a new trust to benefit the United States Treasury (Sjostrum,

In 1999, IndyMac loaned out record amounts. In the first quarter alone IndyMac loaned out $1.6 billion. In July of 2000, IndyMac became IndyMac Bank when it acquired SGV Bancorp. The total purchase cost was $62.5 million and it made IndyMac Bank the ninth largest bank at the time. IndyMac was also the 28th biggest lender in the country(“Too Good to Be True: The Fall of

Lehman Brothers continued to develop their financial strategies and invested heavily into the mortgage market. Once the firm became a practitioner for mortgages, the inflating housing market became an appealing investment. Consequently, Lehman purchased five mortgage lenders one of which included BNC Mortgage, a subprime mortgage lender. These mortgages were offered to people who may not have the finest credit rating or the ability to carry the mortgage should rate

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of