Tuesday, September 28, 2010

New FDIC rule makes banks share some risk

Associated Press
Tuesday, September 28, 2010

Banks will have to share in the risk when they sell investments of the kind that rocked the financial system in 2008 under new rules adopted Monday by the Federal Deposit Insurance Corp.

The FDIC is requiring that banks hold at least 5 percent of the securities on their books, as part of rules required under the new financial overhaul law. Banks would be required to purchase their share of the securities beginning Jan. 1.

The idea is that banks with such exposure to risk would be more careful about properly screening borrowers. Experts say that banks' lack of investment in the risky securities contributed to the financial meltdown.

Financial industry executives have opposed the requirements, arguing that banks don't have enough room on their balance sheets to retain 5 percent of all the loans they make.

At a meeting, the FDIC board also voted to extend through Dec. 31 a guarantee against seizure of the securities in a bank failure if the requirements aren't met. It was set to expire Thursday.