Bailout Likely to Sink Some Small Banks

Those with significant Fannie/Freddie stock face capital crunch
By Jim O'Neill,  Newser User
Posted Sep 9, 2008 10:15 AM CDT
"It's a messy situation," said the CFO of one small bank that invested about $20 million in the mortgage giants, "but we are going to weather this storm.   (Getty Images)
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(Newser) – The government’s takeover of Fannie Mae and Freddie Mac, and the resulting crash of the value of the companies’ shares, has started a domino effect that likely will push some smaller banks into failure, the Washington Post reports. Some institutions heavily invested in the seemingly safe stocks will find it tougher to raise cash in a hurry to meet regulatory requirements.

But the number of banks and thrifts at risk is small, with just a few holding 10% or more of their reserves in the form of Fannie or Freddie stock. And, officials add, the blow can be absorbed. "Any negative impact will be narrowly focused only on a few smaller institutions," said the FDIC's chairwoman.