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The Fate of GMAC Bank

Dec 26. GMAC Bank was approved as a bank holding company [3] but may have failed to clear a final hurdle to receive TARP funds [4].

GMAC, which stands for General Motors Acceptance Corporation, is the financial institution that offers loans to customers and dealers of General Motors, one of the Big Three seeking financial assistance this past week. In 2006, GM sold 51% of GMAC to some private equity firms, including Cerberus Capital Management LP (they also own all of Chrysler). GMAC Bank is a subsidiary of GMAC and GMAC is in a bit of trouble. ACtually, it’s in a lot of trouble. This week, GMAC ” sweetened terms on a debt swap designed to save the firm from bankruptcy and extended the deadline for a fourth time to lure more investors.” (Bloomberg [5]) GMAC is trying to convert to a bank holding company so that it can get access to the TARP bailout funds, but is coming up short.

GMAC Bank, the subsidiary, is fine but it leads many to wonder what would happen to the bank should its parent, GMAC, fail. If history is any indication, everything should be fine. Lehman Brothers had a subsidiary bank, Lehman Brothers Bank, FSB, and according to Ken at BankDeals, the bank wasn’t included in the bankruptcy [6] and is operating as normal. Lehman Brothers filed for bankruptcy in September of this year.

If you’re an account holder, your funds under the FDIC limits are perfectly safe. If you have over the limit, I would play it safe and get under the limit. There are no signs the bank itself is in danger but there’s also no reason to have above the FDIC limits ($250,000 through December 2009, otherwise it’s $100,000).

If you aren’t a customer and you are tempted by their certificate of deposit (CD) rates [7], I’d wait. I’m not a fan of opening accounts at struggling banks [8] because if there is a problem, they often drop their rates immediately afterwards. CD rates don’t have to be honored when another bank assumes them following a failure. You can afford to wait a few weeks to see how things shake out.

I would expect that GMAC Bank will be fine, even if GMAC fails. If they aren’t, FDIC will protect your assets.

(Photo: femaletrumpet02 [9])