June 03, 2009

Though its name connotes friendliness, Ally Bank -- the lending unit of troubled financial services giant GMAC -- has found at least one powerful foe in Washington.The American Bankers Association, the chief lobbyist for U.S. banks, has asked regulators to crack down on Ally's use of above-market interest rates to attract deposits.Though savers clearly like those rates, the ABA contends Ally's deposit-gathering practices are "risky" and "completely inappropriate."

It points to the bank's size, the depleted state of the federal insurance deposit fund and the massive federal investment in recent months at GMAC.This aggressive deposit strategy is particularly egregious when it is used by a troubled bank in which the government holds a controlling interest," said ABA president and CEO Edward Yingling in a May 27 letter to Federal Deposit Insurance Corp.chief Sheila Bair. "Such a bank is significantly shielded from investor and market influences that might otherwise act as a brake on risky financial strategies.