Alan Greenspan's fears ring true as Florida’s BankUnited collapses
Former Federal Reserve chairman Alan Greenspan’s warning that the US banking sector remains under-capitalised came to fruition as regulators presided over the biggest collapse of an American bank so far this year.
Mr Greenspan said on Wednesday night that the global financial crisis was far from over and that US banks must still raise “large” amounts of money before recovery can begin. “There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” he said, adding that the future direction of the US housing market remains uncertain.
His prediction proved to be prescient on Thursday night as the Federal Deposit Insurance Corporation (FDIC) shut down Florida's BankUnited.
The closure of BankUnited, which had $12.7bn (£8bn) in assets and $8.6bn of retail deposits, will cost the FDIC’s insurance fund – which all banks pay into to cover losses for depositors in this sort of situation – an estimated $4.9bn. This makes it the second-costliest collapse of the crisis to date, after IndyMac which cost the fund close to $11bn.
Although the bank has been on the sick list for some time, having been told two months that it was “critically undercapitalised” and instructed to find a buyer, its collapse reinforces the problems underlined by Mr Greenspan.
What remains of BankUnited’s assets was last night taken over by a consortium involving a number of private equity players including Wilbur Ross, Blackstone, Carlyle and Centerbridge Capital, which will recapitalise the bank with $900m.
News of BankUnited’s collapse came after the market had closed, but did not stop the Dow Jones Industrial Average ending the day down 129.91 points – or 1.54pc – at 8292.13 on Mr Greenspan’s fears for the banking and housing industries. Investors were also concerned that the US may be next in the firing line after Standard & Poor’s sounded a warning about Britain’s AAA credit rating.
Sentiment also wasn’t helped by data showing the number of people claiming unemployment benefit had hit a fresh high for the 16th consecutive week.
The Federal Reserve earlier this week said it believes the economy will contract by 2pc this year, rather than the 1.3pc first estimated.