Friday, August 07, 2009

So How's That Bank Bailout Working?

From a widely-circulated email:

Last Friday morning, a business owner and employer of nearly 400 factory workers at a well-established, financially-solid company in Southeastern Wisconsin was told by his bank that, because of pressure from the federal government, he was going to lose half of his available credit line. No warnings, no negotiations, no recourse…just—poof!—gone. As a result, nearly half the workforce at this factory may be laid off, customer orders will be missed, and the products made from this factory’s output will be in a global shortage.

While I can't verify this tale, it's not the first one I've heard that fits the template. It's well-known that the FDIC has been putting enormous pressure on Banks to cut back lines and/or call notes. Right now. Immediately. No discussions, period.

IOW, screw your customer, Mr. Banker, or we, the FDIC, will close your Bank and sell you to a more cooperative institution.

Such as the ones now sucking TARP dollars.

But that's just a conspiracy theory, right?


J. Strupp said...

Do you have a source for the accusation that the FDIC is pressuring the banks to cut credit lines? I know they are doing it on a large scale but my understanding is that the motivation for doing so was an internal one not FDIC pressure.

I'm not trying to be difficult, I just haven't seen anyone talking about this move in great detail. It seems to run contrary to the Fed's policy right now and if true, it would be disappointing news.

Dad29 said...

I have multiple sources in the lender community who --off the record-- will tell you in NO uncertain terms that it's FDIC.

Not to say that the FRB, or COC examiners aren't doing the very same thing...

Jeremy said...

I don't know about FDIC pressure, but my companies line was cut in half in May and we had no say in the matter. We shopped banks but prepayment penalties on loans made it prohibitive to leave. Now we are in our busy season, and guess what, we are applying for a higher line and working with vendors on payment terms. Payroll is a small component of our overall costs so we can't just layoff or fire people to make it up. No line, no product, no sales, then no job.