BlogArt: GMAC (now “Ally”) Still Promising Highest Rates

June 12, 2009 – 1:30 pm

by Rolfe Winkler, CFA

After repeated bailouts, GMAC Bank last month changed its name to Ally Bank.  A great branding move—why wouldn’t you want to deposit your money in a bank that’s your ally, especially when it pays the highest interest rate in the nation on a 12-month CD?

To the right is the bank’s ad in today’s WSJ.  Page A5.

Where’s Sheila Bair and the FDIC with its new interest rate restrictions for weak banks?  Surely GMAC/Ally fits the criteria.  Heck, even the American Bankers Association is unhappy.  They’ve complained to FDIC that GMAC/Ally is unfairly exploiting its privileged position as a “too-big-to-fail” lender.*

Actually a better solution than regulating interest rates offered by banks would be to abolish public deposit insurance entirely.


*”too-important-to-fail” is probably more accurate.  GMAC is a primary source of credit to buy cars.  As such, it’s become one of the administration’s slush funds to pump bailout dollars to a favored constituency…in this case the auto sector and its union workers…

  1. 8 Responses to “BlogArt: GMAC (now “Ally”) Still Promising Highest Rates”

  2. Ally bank tier 1 ratio: 11.38%

    Total risk based ratio: 16.99%

    By Andrew on Jun 12, 2009

  3. Rolfe,

    But if we do away with FDIC insurance on deposits, what will happen to the poor customers who happen to deposit with a bank that fails?

    By Taylor on Jun 12, 2009

  4. Ally/GMAC was one of the bright ideas that led to the demise of GM. Financing your own product and combining a finance company with traditional manufacturing looks good on paper for a while, but it’s usually a disaster in the making.

    By Ward on Jun 12, 2009

  5. At the same time that GMAC Bank – oops I mean Ally – is paying top dollar for “hot money”, their wholesale & correspondent lending division is the last man standing doing FHA loans with credit scores < 600. Everyone other lender in the world has moved to a 620 minimum score, since the lower score loans perform poorly. GMAC doesn’t care about that, though, since they only care about NOW. They figure the gov’t will save their ass again if shoddy lending brings losses.

    By John on Jun 12, 2009

  6. Taylor:

    The same thing that happens when a bank is robbed (which isn’t covered by FDIC): they are paid compensation by a private insurer.

    The reason we have FDIC insurance for insolvency is because the government wants to subsidize irresponsible lending (excessive leverage). Thus, with these levels of leverage, banks would never be able to afford privately-provided solvency coverage.

    Phasing out the FDIC would get rid of this incentive to make excessive irresponsible loans, and reign in fractional reserve lending (which has gone far beyond the 1:10 ratio of the quaint old days, yet which everyone assumes is still the norm).

    By Aaron Krowne on Jun 12, 2009

  7. Better than abolishing all FDIC coverage, why not reduce coverage to, say, 95% of any customer deposit up to the normal limit?

    That way, no one will be wiped out by the failure of a bank, but will also have the incentive to consider the financial strength of the bank–not just the rate paid on deposits.

    By Sam on Jun 12, 2009

  8. I’m not sure full privitization of deposit insurance is the answer. But I do agree that depositers should pay to get rid of what you term “perverse incentives.” Consider the reason why deposit insurance was instituted. It was a half-way remedy in order to retain the private ownership of banks. Full federalization (and turning banks into a simple money dispensing utility) was avoided with the depository program. You might want to revisit this topic again soon.

    By Gregman2 on Jun 12, 2009

  9. So do I have to give back my pony?

    By brian on Jun 13, 2009

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