Banks that were "too small to save" complain that not only were they left to suffer the effects of a weak economy without government bailout money, but they've also had to fight off an increasingly aggressive GMAC, a beneficiary of federal largesse.
GMAC lost $10.3 billion last year, yet because the company was propped up three times, it could still compete -- and quite "aggressively," since it was without restrictions, according to Steve Verdier, director of congressional affairs for the Independent Community Bankers of America. "They were, in effect, using their subsidy to pay more for deposits than other banks would normally pay," Verdier said.
GMAC -- along with its banking subsidiary, renamed last year as Ally Bank -- has been allowed special treatment from the start, according to Chairwoman Elizabeth Warren of the Congressional Oversight Panel, which reported that GMAC will be unable to pay back its three bailouts -- $17.2 billion in taxpayer money -- by October, when the Troubled Asset Relief Program comes to an end.
"Ally Bank is one of the best-capitalized banks in the country," said GMAC spokeswoman Gina Proia. "GMAC is grateful for the U.S. government's support and is committed to repaying the taxpayers' investment in full in a timely manner."
In the winter of 2008, GMAC was turned into a bank holding company by the Federal Reserve in order to make the company eligible for emergency funding under TARP. The Treasury then bailed it out not under the Capital Purchase Program, like all the other megabanks, but under the Automotive Industry Financing Program.
The oversight panel is unsure of the reasoning behind the Treasury's decision and even more skeptical over Secretary Timothy Geithner's conclusion that GMAC need not be held to the same strict standards as the automakers, nor made to fulfill the requirements imposed on banks.
Uncertainty about the company's identity is evident even in an internal struggle over where its banking headquarters should be located -- in Detroit, with the automakers, or in Charlotte, N.C., with the nation's largest banks. Plans to move to Charlotte were scrapped by a new CEO.
GMAC offered some of the highest interest rates for deposit accounts in the country and one-year CDs at 2.8 percent -- rates considered the highest in the nation in mid-2009. According to Verdier, those rates soon drew depositors away from community banks. Although the extent to which GMAC may have hurt small banks is hard to track, the firm reported $36 billion in assets in March 2009 -- a 2,000 percent increase over four years.
The American Bankers Association echoed the concerns of ICBA and filed a complaint with the Federal Deposit Insurance Corp. last year, stating that other bailed-out banks "would never be allowed to follow the aggressive deposit strategy being pursued by GMAC Bank/Ally Bank."
Although the FDIC does not publicly comment on operating banks, "they did send a letter to GMAC asking them to raise their rates and make them more in the competitive range of things, not to be predatory," according to John Hall, spokesman for the American Bankers Association. Almost a year later, Ally still offers above-market rates on CDs and money market and savings accounts, and the Congressional Oversight Panel complains of "missed opportunities to impose strong restrictions" by the Treasury.
"It's clear that TARP convinced many investors that taxpayers will bear any price and absorb any loss to prevent the collapse of a handful of banks," said oversight panel spokesman Thomas Seay. "The panel found this belief can distort prices, forcing smaller banks to compete for credit and for investment dollars with larger banks that are perceived to have implicit government backing. So long as lenders and borrowers believe that an implicit guarantee remains in effect, the market will remain tangled with mispricing, moral hazard and excess risk-taking."
The shadow around the Treasury's decision to bail out GMAC multiple times has left small bankers rankled. "I think GMAC is looked on as a textbook case of the government bailing out the 'too big to fail' crowd and showing a lot of favoritism towards that segment of the industry," Verdier said.
Conservatives charged the administration with favoring GMAC to prop up General Motors and saw a political motive in Ally Bank pulling its ads from conservative commentator Glenn Beck's show after Beck called the president a racist.
"I think it's clear they don't want to offend the Obama administration," said Peter Flaherty, president of the National Legal and Policy Center, a conservative watchdog group. GMAC, Flaherty believes, "should be allowed to fail. The sooner the better."
Analysts have proposed breaking up big banks to confront the risk of Washington-Wall Street politics, an idea community bankers are backing.
Regulatory reform legislation from Senate Banking Chairman Christopher Dodd, D-Conn., would call for higher capital requirements that would keep institutions like GMAC small by weaning them off public money and forcing them to raise their own capital. President Obama's proposed fee on banks with more than $50 billion in assets could also target GMAC as he tries to recoup TARP money, while leaving community banks alone.
Discussions about the fee "could take place in the next few weeks," according to Matthew Beck, spokesman for the House Ways and Means Committee. Whatever happens, Obama promised in his announcement of the program in January that "my commitment is to the taxpayer. My commitment is to recover every single dime the American people are owed."