This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

GE's Shadow Bank Moving Towards the Light

Stocks in this article: GE

NEW YORK ( TheStreet) -- General Electric (GE) learned its liquidity lesson during 1998 financial crisis, and concluded, "if you can't beat 'em, join 'em" by moving from banking shadows into the light over the past four years.

While it may seem ironic to some investors, GE Capital is continuing to lower its liquidity risk by growing its bank deposits.

This may even lower the likelihood of another government backstop for the GE's finance arm, in the event of another major liquidity crisis, like the one we saw in late 2008.

In November 2008, GE announced that the Federal Deposit Insurance Corp. had agreed to allow GE to participate in the regulator's Temporary Liquidity Guarantee Program, covering up to $139 billion in GE Capital debt, including long-term debt and commercial paper.

GE hinted at the time that it was desperate to hold down borrowing costs as liquidity tightened, saying its participation would "allow us to source our debt competitively with the other financial institutions that are eligible for the new FDIC program." The company also participated in the Federal Reserve's Commercial Paper Funding Facility, selling about $16 billion in commercial paper to the central bank.

The company -- which was not eligible to participate in the Troubled Assets Relief Program, or TARP, which featured direct equity investments by the government -- was careful to point out that its participation in the temporary was not a bailout, but that the program put the company "on a level playing field with other financial services companies who are eligible."

Four years on, these events may seem like ancient history, and GE Capital has returned to being a major profit center and source of capital strength for General Electric, paying a $3 billion dividend to the parent company during the second quarter.

without splitting hairs about what really constitutes a "bailout," it is plain that the company is bent on lowering its financial subsidiary's liquidity risk profile, in order to sail through the next economic crisis.

GE Capital had $558.8 billion in total assets as of June 30, shrinking 20% from $695.8 billion as of June 30, 2008. Over that five-year period, the finance company's short-term borrowings declined by 41% to $119.8 billion, while total bank deposits grew by 72%, to $41.9 billion, and $18.2 billion in deposits has maturities of one year or more.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs