The bank announced on September 22, 2008 that it has increased the yield of WaMu Online Savings Account to 4.00%. Back then, everybody knows WaMu was fighting for its survival, so the rate increase could very well be seen as a desperate move to strengthen its capital basis when everybody else was cutting rates. Two days later, on September 25th, WaMu was bought by Chase.

4.00% was good, but nobody got to enjoy it. Now looking back, the last minute rate increase by WaMu could be a sign how bad shape the bank was in.

Anyway, the FDIC today proposed a regulatory change that will prohibit banks with weak capital basis from making excessive interest rate offers. According to the proposal, the new rule

requires the FDIC to prevent banks that are less than Well Capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates. The FDIC’s current regulation ties permissible interest rates paid by these banks on deposits solicited nationally to the comparable maturity Treasury yield, and ties permissible interest rates on deposits solicited locally to undefined prevailing local interest rates.

The proposed regulation would define nationally prevailing deposit rates as a direct calculation of those national averages, as computed and published by the FDIC based on data available to it. Reliance on the Treasury yields in the regulation would be discontinued. In recognition of the blurring of local deposit market boundaries brought about by the Internet and other innovations, the proposed regulation would also establish a presumption that locally prevailing deposit rates equal the national rates published by the FDIC. This presumption could be overturned by evidence presented by banks to the FDIC.

What do you think of the proposal?

On one hand, less Well Capitalized banks are likely in no position to pay excessive interest rates, even though by doing so they may help them attract more savers and, thus, improve their capital positions. However, down the road, if there’s no fundamental changes at these banks, they could face the same facts as WaMu did. On the other hand, if deposit rates acrosee the nation are all tied to the nationally prevailing deposit rates published by the FDIC, could other banks with sound capital positions become less willing to offer competitive rates?

Let’s hope not.

Related posts:

1. Capital One $25 Bonus For Online Savings Account
2. Capital One InterestPlus Account 1.60% APY

Christian Personal Finance discussed a website called DIYplanner.com, which allows you to print free Franklin Planner templates for every size so you can replace those missing pages in your planner.

Money Blue Book reviewed FNBO Direct High Yield Savings Account. It was a nice account and I used it a lot last year. But currently at 2.80% APY, I don’t see it as an attractive savings account any more.

Armchair Fiduciary reviewed book The 4-Hour Week and summarized 4 key principles from the book that can be applied to personal finance. Check out the original post to see what he read from the book.

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First Georgia Community Bank has been a member of the FDIC since 1997 (FDIC certificate number 34301). According to the statement, First Georgia Community Bank had total assets of $237.5 million and total deposits of $197.4 million as of November 7, 2008. After the acquisition, all deposits have been transferred to United Bank and are available for immediate withdrawal. First Georgia Community Bank branches will open for business as usual on December 6, 2008.

How many banks will fail before the 2008 is out?

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