Source: Charlotte Observer

On Friday, with its stock plunging 27 percent, Wachovia experienced a “silent run” on deposits, but the bigger worry for regulators was that other banks wouldn’t provide the Charlotte bank with necessary short-term funding when it opened for business Monday, sources familiar with the situation told the Observer.
…

The FDIC, for the first time, used legislative authority created in 1991 to help it deal with a “very large complex bank failure” on short notice. It requires approval from heavy hitters – two-thirds of FDIC board members, two-thirds of Federal Reserve board members as well as the Treasury secretary, who must consult with the president.

…

The new details show the precarious situation Wachovia faced over the weekend as it rushed to find a suitor, even as Congress debated a possible bailout plan. Intense negotiations in New York included a decision by Wells Fargo to pass on a deal Sunday and frequent consultations with the Office of the Comptroller of the Currency, the bank’s primary regulator, and the FDIC, sources said. In the end, the FDIC, which insures customer deposits, forged the deal because it has “the pocketbook,” a source said.

…

Inside Wachovia, executives started noticing customers withdrawing money on Friday morning, following the failure of Washington Mutual on Thursday. “The so-called silent run on the bank – it’s real,” Carlos Evans, Wachovia’s wholesale banking executive, said in an interview. “When Congress failed to pass the ($700 billion bailout) proposal, when WaMu collapsed, you could see the money flowing. My computer screen was lighting up.”

Starting Friday morning, Evans said, businesses and institutions with large accounts started withdrawing money to lower their balances to below the federally insured $100,000 limit. They weren’t closing accounts, he said, adding “they were very apologetic in saying they love the service they get from Wachovia and they weren’t leaving Wachovia. They were just moving their money until things settled down.”

…

The FDIC and the OCC declined to comment on whether the bank experienced a run on deposits. However, FDIC spokesman David Barr said it wouldn’t be surprising. “When a bank in the news is rumored to be in trouble that does prompt a lot of depositors to take a second look at their deposits,” he said.
…

The FDIC became more heavily involved as the weekend progressed because of its role in protecting consumer deposits. For the first time, the agency triggered a “systemic risk exception” under the 1991 law that allows it to ignore a requirement to choose the “least costly” method for resolving a failing bank.

…

Full Story…

Related Items