FDIC Gave Flagstar $25 Billion Cash, For Free

Flagstar, the acquirer of the assets of Signature Bank, is boasting they received $25 billion in cash by the Federal Deposit Insurance Corporation (FDIC).

In a filing with the Securities and Exchanges Commission, their parent company the New York Community Bancorp, said:

“NYCB acquired a highly liquid, mostly cash balance sheet with a $2.75 Bn excess asset position at no deposit premium.”

They basically got the money for free, which they can now lend out as their loans to deposit ratio has been brought down from 118% to 88%.

The bank did pay $10 billion for $13 billion worth of loans that Signature gave out, but this was bought at a steep discount, leading to a loss of $2.5 billion for FDIC.

Just why the deposits were given out for free is not clear, but Flagstar goes out of their way to point out they didn’t receive any of the deposits from crypto customers, even for free.

It is widely thought that FDIC was unwilling to give those deposits to any bank, raising questions of bias at the regulator and more importantly whether they are acting in the best interest of the taxpayer.

Signature had only $4 in deposits after it went into receivership by FDIC, or about 5% of their circa $88 billion deposits, and yet some in corporate media still like to call it a crypto bank.

This bank went under after $10 billion was withdrawn on Friday the 10th and the Federal Reserve Banks refused to lend it money.

Just a year earlier, in April, FDIC issued to Signature and other banks a letter asking them to notify it if they engage in any crypto activity.

“Prior to engaging in, or if currently engaged in, a crypto-related activity, an FDIC-supervised institution promptly should notify the appropriate FDIC Regional Director,” the letter said.

It emphasized that “crypto assets or crypto-related activities may pose systemic risks to the financial system.”

They also claimed “activities involving new and rapidly emerging technologies can amplify risk to the insured depository institutions.”

Signature was mainly providing dollar redeeming facilities for Coinbase and their USDc stablecoin, so was not itself involved in crypto.

That was through an infrastructure called Signet that could operate 24/7, making it valuable, but FDIC apparently doesn’t plan to sell that.

The chair of FDIC, Martin J. Gruenberg, has been in his position since 2009, making him the longest serving chair at this institution in history.

His financial disclosure is not online, even though they are required to be publicly available by law, presumably because uploading such things on the internet was not so common for the bureaucracy back in 2009.

Anyone can ask for this financial disclosure however, if they’re a US citizen, by just completing a quick form to make it public.

The exclusion of crypto deposits has led to questions about why Silvergate really fell, with Nic Carter, co-founder of Coin Metrics and partner at Castle Island Ventures, claiming it was an opportunistic hit.

While the facts there remain unclear, the giving away for pretty much free of Silvergate’s assets to Flagstar is admitted.

That includes branches in NY, CA, CT, NC and NV, with it unclear just how much the real estate itself is worth which they’re now getting for pretty much free.

The only thing FDIC gets is equity, payable in stock, valued up to $300 million.

That’s while bank stocks are considerably down, including NYDC’s which crashed 23% on March the 8th, from $8.30 to $6.40, to only recover all losses on March 17th when it was announced they’re getting all these billions in deposits for free.

The stock has moved down however nonetheless in the past five days by 5%, though it is slightly up today by 0.5%, showing just how strong the jitters in bank stocks remain.

Yet that the market’s response was a large hurray for Flagstar’s stock on March 17th should make it clear that FDIC got fleeced. Maybe even willingly, but in that case they would have completely failed in their duty to the public and the taxpayer.

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• Source: https://www.trustnodes.com/2023/03/24/fdic-gave-flagstar-25-billion-cash-for-free