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Washington Mutual's Rating Cut to Junk
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A TPG spokesman had no comment.
A Washington Mutual spokesman also declined to comment.
The FDIC's insurance fund had assets of $45.2 billion at the end of June. Extrapolating from the average cost of all bank failures over the past decade, based on FDIC data, that was enough to cover the failure of banks with total assets of $288 billion. Washington Mutual alone had assets of more than $350 billion at the end of June.
Gray said that under some circumstances, the FDIC might turn to the Treasury for short-term loans to cover the initial costs of a failure, which it would then repay as it processed the failure and was able to replenish the insurance fund. He said the FDIC last accessed such funding in the early 1990s.
There have been only 11 bank failures this year, but industry consolidation means the average failed bank is now several times as large as ones that collapsed in the early 1990s.
The FDIC said it regarded 117 institutions as troubled at the end of June. It does not disclose the names of banks on the list.
The agency's board of directors will consider at its October meeting raising the insurance premiums that banks are charged. The insurance rates are set on a sliding scale based on the financial health of the bank; weaker banks pay more, reflecting the greater risk of a failure. Gray said the increase would be likely to raise rates disproportionately for those banks to make sure the weight of the increase was carried primarily by the banks at greatest risk of failure.
The Office of Thrift Supervision, which regulates Washington Mutual, has expressed increased concern about the company. The bank disclosed earlier this month that it had a "memorandum of understanding" with the regulator, requiring the company to improve its risk management and submit a business plan showing how it plans to address problems.
After Moody's downgraded the company's stock on Thursday, Washington Mutual issued a statement saying the downgrade was "inconsistent with the company's current financial condition."
Washington Mutual is in trouble primarily because of its role in selling option ARMs, mortgage loans with payment terms that resemble a credit card, allowing the borrower to pay less than the total due each month. The default rates on such loans more closely resemble the high failure rates on credit cards than the low failure rates on conventional mortgage loans.
