Word: fdic
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...banks. That's because banks have to regularly issue bonds in order to have money to make loans and underwrite securities. This became much harder to do during the credit crunch, so the government began allowing banks to offer bonds that are insured by the Federal Deposit Insurance Corp. (FDIC). With the government's backing, banks were able to raise money. (See 25 people to blame for the financial crisis...
...market on their own, but the rates they are now paying investors - without government backing, that is - are significantly higher. Analyst Brad Hintz of Bernstein Research estimates that JPMorgan, one of the healthiest banks, will have to pay three percentage points more per year to borrow without the FDIC guarantee. That would boost the interest JPMorgan has to pay on five-year loans to 6%, from an FDIC-backed rate of 3%. For Goldman, the cost of borrowing could rise as much as five percentage points...
...raised just over $225 billion using government guarantees, according to Thomson Reuters. Had the banks had to raise that money on their own it would have been much more expensive. Morgan Stanley, another bank that has reportedly been looking to pay back TARP funds, has raised $23 billion in FDIC-backed debt since the program began in November. Hintz estimates the government's help is allowing Morgan Stanley to lower its borrowing costs by 5½ percentage points. That would have raised Morgan Stanley's expenses by nearly $1.3 billion a year. And that is just the money...
Much of the shadow-banking system is now gone or in hibernation. Two of its leading institutions, Goldman Sachs and Morgan Stanley, have become commercial banks. With fewer competitors, banks have a lot more pricing power, while Federal Reserve lending programs and Federal Deposit Insurance Corporation (FDIC) guarantees of deposits and bank-bond issues have sharply lowered funding costs. Net interest margins appear to be turning the corner, and as a result, it is not inconceivable that banks will be able to steadily earn their way out of their problems over the next few years...
...likelier course of action than it seemed just a few weeks ago, meaning that our banking system may survive more or less intact. This seems like a terrible cop-out, until you consider that this financial crisis wasn't initiated by the banks - that is, FDIC-insured depository institutions. It was a crisis that began among and devastated the shadow banks. A few banking companies - Citigroup, UBS, JPMorgan Chase - did become deeply entwined in the shadow-banking system through their investment-banking arms. But banks, narrowly defined, weren't the big problem. So letting the banks, narrowly defined, squeak through...