Briefing: Hot Money in Alaska; Banks Trading Their Prepaid Assessment Credits

A banker from Alaska emails:

We’re getting unsolicited “hot” money from 4-5000 miles away to get a lousy rate here. We took in $2 million in smaller 6 month CDs, for 65 basis points, from a NY broker this morning. It’s been happening for several weeks now. We’ll probably close the tap from Outside (Alaskan slang for lower 48) because their problem (brokers and their customers) now becomes our problem. The problem is, quality loan demand is minuscule and investment (bond) options pay lousy rates. What the hell am I going to do with this money?

I think this may be a symptom of the existing crisis, or a harbinger of a new one.

Maybe I’m over-caffeinated and overreacting, but I don’t like the feel of this.

On another note…

I’m on a conference call with the ABA about a program from Promontory Interfinancial Network, the people who bring the super rich the CDARs program. Today’s scheme is banks trading their prepaid assessment credits with each other. The FDIC, has the final call if a “trade” is approved. It’s a sign of the times…

I asked the banker for a little more detail on the Prepaid Assessment Credits. He wrote back:

Banks that are going to need more assessment credits can now trade with those who have extra. You see, the 3.25 year prepaid was made on assumptions on how a bank would look like down the road—because not everyone pays the same $$ amount for their “insurance”. Banks that have extra and need the liquidity would then go to the sponsor’s website and put their credits out to bid. If I needed liquidity, why would I go to this level? If you needed liquidity and had extra credits, you’d have to be in sorry shape to see this as a good way to raise liquidity.

It’s the Sign O’ the Times because who would’ve thought we would be talking about stuff like this 20 years ago? Maybe it seems strange to only me.

Definitely too much caffeine today.