The FDIC proposed limits on the interest rate banks that are classified as less than “well capitalized” can pay to depositors, according to a press release issued by the agency today.

The restrictions would stop floundering banks from trying to attract new depositors by paying interest rates that are well above the national average. This would apparently limit the FDIC’s liability should a poorly capitalized bank go under after attracting large volumes of new deposits.

The good news is the measure will only apply to a handful of banks. There are about 154 banks classified as less than well capitalized out of more than 8,300 banks across the country.

The British government announced plans to offer additional financial aide to the nation’s faltering banks on Monday. Like the United States, Britain provided a rescue package to its nation’s banks in October 2008, but banks have not used the money they received to extend more credit to businesses and consumers.

Britain’s new bank-rescue package is designed to encourage banks to lend money despite increasing losses while providing government-backed insurance for bad loans the banks already hold. Critics worry the governments actions bring certain banks, particularly the Royal Bank of Scotland (RBS), perilously close to nationalization.

Prime Minister Gordon Brown announced Monday that the government now owns almost 70 percent of RBS, although he declined to say whether the government was keen on nationalizing the bank completely.

Britain’s troubled banks—and the government’s efforts to help them—closely mirror the banking problems and government rescue plans here in the United States. What remains to be see is whether either nation will be successful in quickly resuscitating their banks by providing billions in financial assistance.

In a move that nearly echos BankAround’s editorial yesterday, Citigroup announced today it would split up its business into two units after posting a fourth-quarter net loss of $8.29 billion—the bank’s fifth quarterly loss in a row.

Under the new organization, one unit, Citicorp, will run traditional banking around the world; the other unit, Citi Holdings, will deal with the company’s riskier assets and may attempt to sell off some of the bank’s toxic assets.

Like a few of the world’s other largest banks, Citi has tried to become a “financial supermarket”, offering businesses and consumers every possible financial product or service—a model many critics say is unsustainable. Citicorp will attempt to return to the core of retail banking—taking deposits and lending money. The challenge the company will face, especially in the U.S., will be maintaining and growing its consumer banking business in the shadow of its recent public struggles.

The stocks of Citigroup and Bank of America are bleeding out on Wall Street today. Some experts think the two banking giants’ troubles will spill over into hundreds of other banks. Although Washington is undoubtedly already scheming about how to inject more Troubled Asset Recovery Program (TARP) money into the banks, some wonder: Why not just nationalize the banks? I’m not sure nationalization is the answer any more than letting the banks fail is the answer. But perhaps one lesson that will come from the recession and banking crisis of 2008 (and now, it would seem, 2009), is that, when it comes to banks, bigger isn’t better. Read more…

Congress plans to debate legislation later this week that would give the Federal Deposit Insurance Corp. (FDIC) increased powers to protect consumers from failing banks.

The bill would utilize the remaining funds—approximately $350 billion—from the bailout package passed in October 2008 to permanently increase the FDIC’s deposit-insurance limit to $250,000. October’s bailout package raised FDIC deposit-insurance limits to $250,000 per customer, per bank, through December 2009.

The bill would also increase to $100 billion from $30 billion how much the FDIC can borrow from the U.S. Treasury to support the insurance fund, and extend the amount of time the FDIC would have to replenish the fund in the event of widespread distributions.

If passed, the measures could be especially helpful to small community banks who can use the increased levels of insurance to assure potential customers their deposits are safe.

Where is all that TARP money going? Did your bank take a cut of the billions in bailout dollars authorized by Congress last fall under the Troubled Assets Relief Program (TARP)?

Public interest group ProPublica is keeping a list of banks that took TARP money. What’s surprising about the list is not how much money the big banks have already received under TARP, but just how many small banks are on the list, too. That said, here’s a breakdown of what the top 10 TARP money recipient banks have taken: Read more…

Bank of America took the title of largest U.S. bank, by assets, after it completed its purchase of embattled Wall Street securities trading firm Merrill Lynch this week. The Charlotte, N.C.-based Bank of America now controls $2.7 trillion.

Wells Fargo and PNC Financial Services Group also finalized acquisitions of rival banks this week in the midst of an economic crisis that is redefining banking in the United States.

Each of the three large banks is expected to lay off employees as they roll the aquired companies into their own organizations.

Fewer banks failed in 2008 than expected despite the catastrophic failures of major U.S. thrifts like IndyMac and Washington Mutual, American Banker reports.

Experts believe that government intervention, including the $700 bailout plan or “TARP” program, may have stemmed the worst of the bleeding at the nation’s banks, but suggest many will not make it through 2009.

The report suggests the Federal Deposit Insurance Corp. (FDIC) is even anticipating the increase in failures, noting the government-backed insurance group almost doubled its budget for next year, to $2.24 billion. At least the FDIC is one place that’s hiring in these gloomy times; they expect to add 800 jobs in 2009.

I’m not going to get nervous about where my money is stashed, but I will be double checking I don’t have more than $250k (the new FDIC insurance maximum) in any one deposit account. 2009 is going to be an interesting year economically in a lot of ways; the prospect of more bank failures is but one ingredient in the pot.

The US Federal Reserve granted approval for American Express to become a commercial bank this week, making American Express the latest financial services firm to become a bank in an emergency effort to find new sources of capital and gain access to government funds. Read more…

Banking giant JPMorgan Chase announced it will work to help homeowners avoid foreclosure and has pledged not to initiate new foreclosures until reviewing all distressed loans. Read more…

The Federal Reserve cut its benchmark federal funds rate down half a percentage point to 1% today, the lowest the rate has been in four years. The Fed also indicated more rate cuts are possible as it attempts to revive—or at least stall—a crumbling U.S. economy. Read more…

Bank of America will use the $25 billion cash injection it is receiving from the U.S. Government to make business and consumer loans, bank CEO Kenneth Lewis told CBS’ 60 Minutes yesterday. He added the he expects Bank of America to repay the loans in no more than five years. Bank of America, based in Charlotte, N.C., is the second-largest bank in the United States. Read more…

Unless you live in New Jersey, New York, or Connecticut, you may have never heard of Hudson City Savings Bank. But this week, everybody’s hearing about the 126-branch savings and loan. Why? Because the bank brought in $4 billion last year and, more importantly, is still profitable in today’s economic mess. Out of 80,000 mortgages they hold—only about 350 are more than 90 days delinquent. That’s great for Hudson City, but also for its customers, because it means they are not facing foreclosure. What’s Hudson City’s secret? Read more…

Millions of long-time customers of now defunct banks Washington Mutual and Wachovia are waiting nervously to see what business will be like with their new banks (JPMorgan Chase, who bought WaMu, and Wells Fargo, Wachovia’s new owner). If you were a WaMu or Wachovia customer, you have a choice: Keep waiting, or pick up your money and head down the street. What’s best for you? Read more…

The Federal Deposit Insurance Corporation (FDIC) raised the limit of deposit insurance on U.S. bank accounts on October 3rd from $100,000 to $250,000 per depositor. The FDIC limit increases are a temporary measure to help restore consumer confidence in banks after several major institutions, including Washington Mutual and Wachovia, failed earlier this fall. The increased FDIC limits will remain in effect until December 31, 2009, after which the limit will return to $100,000. Read more…