Government Shores Up Liquidity
Most of the coverage of the changing regulatory landscape for banks has focused on capital strength, since the bursting of the real estate bubble made it clear that many banks didn't have sufficient reserves and core capital to cover loan losses. The perceived weakness in capital strength fed fears of a liquidity crisis, and large thrifts that failed early in the credit crisis, including IndyMac Bank and Washington Mutual, experienced alarming deposit flight before being shut down by the Office of Thrift Supervision and placed into Federal Deposit Insurance Corp. receivership in 2008. Following the closing of Washington Mutual -- the largest bank or thrift failure in U.S. history, with $307 billion in total assets when it when it failed in September 2008, after which the institution was sold by the FDIC to JPMorgan Chase ( JPM) -- the federal government took very strong measures to preclude additional retail runs on bank deposits. The Emergency Economic Stabilization Act was signed into law by President George W. Bush in October 2008, and included the $700 billion Troubled Assets Relief Program, or TARP, as well as a temporary increase in the basic individual limit on FDIC deposit insurance coverage to $250,000 from $100,000. The deposit insurance limit increase was later made permanent.