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Quote of the Day
“You were able to turn what would have been the largest and most consequential bank failure in history into a medium-sized, below-the-fold news story. I don’t think markets appreciate the size of the bullet that was dodged, although everyone will understand it when history is written.”
-Federal Reserve Chairman Ben Bernanke in a letter to FDIC Chairwoman Sheila Blair, after her negotiating a deal for Citigroup to save Wachovia Bank on this day in 2008.
This Day in Stock Market History
2008 – FDIC chairwoman Sheila Blair calls Wachovia CEO Bob Steel to tell him that the FDIC would be seizing the company. It would have been the largest bank failure in US history, more than twice the size of Washington Mutual which failed 2 days before.
A “soft run” had occurred on Wachovia Bank Friday September 26th when depositors withdrew more than $5 billion in assets from the bank in a single day. It was unlikely that Wachovia would be able to stay in business as business resumed the next day.
But several other regulators, led by Tim Geithner, felt that was a mistake to seize Wachovia, and the actions would send the markets further into a panic. Geithner and others urged Blair to find another solution that included the private sector stepping in. Later that night, the FDIC would broker a deal with Citi group to acquire most of the bank’s banking operations for $1 a share.
However, this deal would not go through either, as Wells Fargo would launch a competing bid October 3rd.
Here is how the Associated Press covered the story:
Best September 28th in Dow Jones Industrial Average History
1932 – Up 2.84%, 2.03 points
Worst September 28th in Dow Jones Industrial Average History
1931 – Down 2.77%, 2.97 points.
Read of the Day
Tim Geither details the story of Wachovia’s failure, along with all the other harrowing events of the 2008 financial crisis in his memoir Stress Test: Reflections on Financial Crises