GMAC Financial Services’ renamed online institution—Ally Bank—is just too generous, according the American Bankers Association. GMAC Financial Services begs to differ.

In a letter last week to Federal Deposit Insurance Corp. chairman Sheila Bair, ABA president and chief executive officer Edward L. Yingling said that the bank had increased its deposits from $1.6 billion in March 2005 to $22.5 billion in March of this year by “offering interest rates well above the market,” offering Ally’s rate for six-month CDs as an example. Yingling cited the Bank Rate Monitor’s May 18 national average rate for such CDs of 0.99 percent.

“Ally Bank is advertising rates of at more than double this national average, at 2.13 percent,’ Yingling wrote. “Rates offered by [Ally] for 1-year and 2-year CDs are generally the highest in the nation.” At the same time, “the bank’s financial reports have shown the bank to be losing money,” he noted. “Congress and the FDIC, mindful of the harm that can arise when a potentially troubled bank tries to grow its way out of problems, have imposed limits on the rates that less than well capitalized banks can offer for deposits,” Yingling wrote. And then there’s all that government support for GMAC Financial Services.

GMAC Financial Services CEO Al de Molina strongly rebutted the ABA’s positions. “First of all, Ally is among the best capitalized banks in the country,” he contended in a letter to Yingling dated June 1. Its Tier 1 ratio “is almost triple” what the FDIC considers to be well capitalized, de Molina noted. He also scoffed at the ABA’s comparison between Ally and institutions trying to grow out of their problems. After all, wrote de Molina, “GMAC has been financing auto dealers and customers alike since 1919.” Today Ally is “originating assets into the bank that were formerly originated at GMAC,” he said.  

Sure Ally has been losing money, because “like many of your members, the bank has a portfolio of ALT A mortgages which has created losses in this recession,” the letter continued. As for the TARP money, Ally is putting in the hands of consumers and small businesses, “as other banks should be doing.”

Some of the steam may have leaked out of de Molina’s spirited defense, however, in the aftermath of GM’s Chapter 11 filing. GMAC Financial Services issued a statement on the heels of that filing that somehow lacked the flavor of de Molina’s letter: “GM has submitted a motion to the U.S. Bankruptcy Court, that, pending approval, would allow its direct business with GMAC to continue in the ordinary course during GM’s restructuring,” it said in part.

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