Rick Rothacker and Kerry Hall
The Charlotte Observer
October 2, 2008
On Friday, with its stock plunging 27 percent, Wachovia experienced a “silent run” on deposits, but the bigger worry for regulators was that other banks wouldn’t provide the Charlotte bank with necessary short-term funding when it opened for business Monday, sources familiar with the situation told the Observer.
With Wachovia already looking for a merger partner, the Federal Deposit Insurance Corp., in consultation with other regulators, required the bank to reach a sale to Citigroup on Monday morning.
The FDIC, for the first time, used legislative authority created in 1991 to help it deal with a “very large complex bank failure” on short notice. It requires approval from heavy hitters – two-thirds of FDIC board members, two-thirds of Federal Reserve board members as well as the Treasury secretary, who must consult with the president.
“When Wachovia opened Monday it would not have had a source of liquidity,” a source familiar with the situation said. “It really could not have opened under those circumstances. That’s why (the FDIC) put together the assistance package.”
A d v e r t i s e m e n t
The new details show the precarious situation Wachovia faced over the weekend as it rushed to find a suitor, even as Congress debated a possible bailout plan. Intense negotiations in New York included a decision by Wells Fargo to pass on a deal Sunday and frequent consultations with the Office of the Comptroller of the Currency, the bank’s primary regulator, and the FDIC, sources said.
In the end, the FDIC, which insures customer deposits, forged the deal because it has “the pocketbook,” a source said.