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Puerto Rico Bank CDs?
Old 09-10-2008, 09:23 PM   #1
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Puerto Rico Bank CDs?

Occasionally I check out the CD rates at VBS. Kind of like, okay, if I had enough money to make laddering the CDs worth the time - day dreaming of sorts.

I noticed today that most of the highest CD rates were from banks in PR. Doral Bank, R-G Premier bank, etc. I checked them out on the FDIC site, and they both have billions in assets. I figured there had to be some catch explanation for the higher rates, and thought someone [brewer, etc.] might already know.

Thanks,
Alec
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Old 09-10-2008, 09:34 PM   #2
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Yeah I was wondering the same thing yesterday while I was checking the CDs available at Vanguard. They had nice juicy rates but I had never heard of them. Of course they are FDIC insured, so in the end does it matter?
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Old 09-11-2008, 02:35 AM   #3
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I have been wondering if FDIC, itself, has a moral hazard. To attract cash a failing bank can offer higher rates even though it is questionable that they can pay the rates very long. They can justify this with two lines of thought. One, the liquidity will give the bank the breathing space to recover their business - not a moral hazard. Or two, the bank can simply think that, even though the rate is higher than they normally would offer, no one is hurt if no one exceeds the FDIC limit - a moral hazard.
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Old 09-11-2008, 07:17 AM   #4
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Some of those banks are not in great shape. But they are all covered by the FDIC, so keep it under the insurance limits and you should be OK.
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Old 09-11-2008, 08:48 AM   #5
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Some of those banks are not in great shape. But they are all covered by the FDIC, so keep it under the insurance limits and you should be OK.
It's all good until FDIC runs out of money, and then borrows $70 billion from the Treasury.

Imagine the dent a WAMU failure would put on FDIC...........
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Old 09-11-2008, 04:45 PM   #6
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I have about 25% of my CD money with the PR banks. The interest rates seem to run about 0.1 to 0.25% higher so it isn't that much more.

I strickly keep less than $50,000 in any one bank.

I'm counting on FDIC backup. If you think this is a panic, watch what happens if the FDIC doesn't back up a failed bank. I think the government would turn on the printing presses full speed to avoid that happening.
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Old 09-11-2008, 06:25 PM   #7
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I If you think this is a panic, watch what happens if the FDIC doesn't back up a failed bank. I think the government would turn on the printing presses full speed to avoid that happening.
It is the obvious answer, and so far the government is cruising down the path of trying to prevent a credit implosion by printing (virtual) money.
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