Tuesday, May 05, 2009

Status of GMAC Bank if GM files for bankruptcy

Although bankruptcy of GM is still not assured, it is a distinct possibility. That raises the question of the financial status of GMAC and GMAC Bank, and deposits held in accounts at GMAC Bank. Worst case, FDIC insurance is in effect up to the $250,000 limit, no matter what happens with GM and GMAC, so there is no "worry" about money held in GMAC Bank deposit accounts (up to that $250,000 limit.) Nonetheless, it is interesting to ponder where that insured money will end up if GM itself goes under or is reorganized in bankruptcy.

GMAC Bank is simply a bank that happens to be owned and controlled by GMAC. There are regulators who monitor the solvency of the bank.

GMAC is now a bank holding company, which is a bit more messy than a simple "bank" bank.

Conceptually, it is very possible that GMAC Bank might be completely untouched even if GM goes into bankruptcy and reorganization. Ditto with GMAC, but my hunch is that there are liabilities within GMAC and GMAC would need to be reorganized in bankruptcy of GM.

If GMAC itself were to be reorganized away, the status of GMAC Bank would depend solely on its own solvency and not the solvency (or insolvency) of either GM and GMAC.

It is possibly that GMAC Bank could in fact become a standalone bank, or maybe more likely that some larger bank would acquire them and merge all of their assets and liabilities.

It is also possible that GMAC could become a standalone bank and maybe then their banking regulators might decide to close them (e.g., if they have too many GM or GMAC assets that decline in value or become worthless) and either sell the deposits to another bank or pay them off by check. Either way, deposits are protected by FDIC insurance.

There are all sorts of variations possible, but at the end of the day FDIC insurance is still FDIC insurance, so that depositors at GMAC Bank (including me) need not worry about funds below the regulatory $250,000 limit.

The only real downside for any of us GMAC Bank depositors is that if our accounts do end up at another, healthier bank, our interest rates would likely fall sharply from the current 2.25% for online savings.

I would note that SmartyPig.com is paying 3.05% APY FDIC-insured for online savings. Oink! Oink! [No reports of any swine flu, so far.] So, fresh money would find a better home there than at GMAC Bank.

-- Jack Krupansky

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