Bracing for a Wave of Bank Failures
Too be filed under Doh!:
“With bank failures running at their highest level in nearly two decades, the F.D.I.C. is racing to keep up with rising losses to its insurance fund, which safeguards savers’ deposits. On Tuesday, the agency announced that it had placed 702 lenders on its list of “problem” banks, the highest number since 1993.
Not all of those banks are destined to founder, and F.D.I.C. officials said Tuesday that they expected failures to peak this year. But they also warned that the fund might have to cover $20 billion in additional losses by 2013 — a bill that could be even greater if the economy worsens…
With so many banks failing, the federal deposit insurance fund has been severely depleted. At the end of 2009, it carried a negative balance of $20.9 billion.”
Surprisingly, the FDIC’s reserves are somewhat better than they appear:
“The insurance fund is in better shape than such numbers might suggest, however. Officials estimate that bank failures would drain about $100 billion from the fund from 2009 through 2013. But of that amount, a total of roughly $80 billion in losses were recognized last year or projected for 2010. By that math, the agency is expecting an additional $20 billion of losses over the next three years.”
Of allt he regulators who were thwarted by politicians or who missed the crisis, the FDIC did the best job heading into the crisis. And for the record, the FDIC fund, unlike TARP, is NOT taxpayer monies. Rather, its paid for with bank fees. Even if they deplete the fund, they are looking for a line of credit, not actual cash.
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Source:
At F.D.I.C. , Bracing for a Wave of Failures
ERIC DASH
NYT, February 23, 2010
http://www.nytimes.com/2010/02/24/business/24fdic.html
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February 24th, 2010 at 7:10 am
See also:
February 24th, 2010 at 7:19 am
And for the record, the FDIC fund, unlike TARP, is NOT taxpayer monies.
Ultimately aren’t these charges passed onto the banks clients?
February 24th, 2010 at 7:26 am
Is CITI on the list of 702?
They still have the hook into Uncle Sap for 300B+ WOW
February 24th, 2010 at 7:59 am
>> Rather, its paid for with bank fees.
Yes. But, isn’t it also true the FDIC isn’t closing banks that they should, because closing them would force the FDIC to go to Treasury/Congress/taxpayer for more money? Isn’t that why one of the “solutions” to the crisis was for our government to pair failed big banks with even bigger failed banks? Those “solutions” exacerbate “TBTF”. And the “bigger failed banks” all owe their existence to government support.
Maybe its conduct is “better” than others. Dunno. Couldn’t the FDIC have recognized a housing bubble and demanded higher, even exorbitant premiums from banks during 2003-2005, both as a way to ensure they can actually perform their duty now and perhaps as a way to inhibit the behavior that led to the crisis?
February 24th, 2010 at 8:02 am
“Sooner or later, they all say D’oh!”
I’m just fearful of when and why Ben Bernanke will say it.
February 24th, 2010 at 8:18 am
nothing too woryy about, drive on by, my official deflation date is now 2-1-2010, world currencies are extremely weak, as we all watch the kabookie theatre of toys and ben and the caring of health the swans are gathering quite a bit of dust
good luck too all
good news though, earl will tank
February 24th, 2010 at 9:12 am
The selective enhancement of larger institutions continues…
February 24th, 2010 at 9:22 am
Screw the “community banks.” They’re the subsidy-sucking farmers of the advanced-digital age.
Next they’ll be moaning about how they’re all just “family banks” and how we’ve got to contort the estate tax, the income tax, the sales tax to accommodate them. …the PE guys need to roll them up so we can have a First-World banking system.
…oh and privatized the FDIC.
February 24th, 2010 at 9:33 am
Shiela Bair is the worst.
How is the list of “problem banks” so high… when credit bonds and project finance bonds are all back from 10-20-50 to 70-80-100. 50-100% returns across bank loan and HY bond indices?
She is just closing banks that will be fine… and handing the assets on cherry deals to other banks. Estimates of “expected costs to FDIC” are likely to be WAY too high (just on basic conservatism, see TARP).
BR — Maybe you could do an interview with Bill Isaac. He is the best guy in finance/banking. Was hollaring for a different approach in 2007 and early 2008. Has gone quiet since because he is not some blame-oriented limelight ho (like Volcker). He was very critical of Bair and Paulson back in 07/08. I wonder what he thinks now?
February 24th, 2010 at 10:14 am
Check how much is the estimated losses to FDIC insurance fund (DIF) due to bank failures since 2008 at :
http://portalseven.com/finance/Failed_Banks_FDIC_Cost.jsp
February 24th, 2010 at 10:37 am
Problem is, the “right” banks aren’t failing. If they had been allowed to go tits up, sound regional banks could have stepped in and filled the void. But we’ve already been through all this…months, years ago.
February 24th, 2010 at 10:44 am
cognos Says:
“Shiela Bair is the worst.
How is the list of “problem banks” so high… ”
Yes she is the worst. She has not tried to loot the tax payer to save the crony bankers. Cognos I’m with you, moral hazard and it is no ones fault as the default way to run a “capitalist” system. Laws? regulations? we don’t need no stinking laws or regulations we have tax payer’s dollars and acquired politicians.
February 24th, 2010 at 10:52 am
Just kicking the can down the road. Most of the banks that have been shuttered have been so small as to create little to no ripple in the pond of money. Close down Citi, and you create a gigantic hole in the bottom of the pond.
Colonial Bank in Montgomery, AL was shuttered in August of this past year, and the effect was quite large in Alabama, as the market changed dramatically. Wachovia’s problems have been masked by the charade game that Wells Fargo played with Treasury….
February 24th, 2010 at 11:42 am
Sounds like we should have had FDIC take care of the TBTF banks back in January. What would trigger FDIC to step in at Citibank and take over the bank as is done in smaller banks?
February 24th, 2010 at 12:03 pm
We’ll have 300, 400, maybe more bank failures in 2010. Will send erosionary ripples through the real econoomy. This is what happens in depressions, deep recessions, lost decades, or whatever you feel comfortable calling our situation.
We are unraveling. Our economy and future are based on very weak fundamentals and lots of false data and errant policies.
Make lots of money while you can and when the inflation phase takes off transfer your cash into hard assets (silver, gold, rental properties, etc.)
Gulp!
February 24th, 2010 at 12:28 pm
Sheila Bair “the worst”…no, one of the few with intelligence AND common sense…would love to see her replace “Timmy”! And re. “fees passed on to clients”…how about their DESERVING investors and lenders?
February 24th, 2010 at 1:12 pm
The number of bank failures are just going to increase within the next several years. We’re on the brink of collapse. Hey, we’re not the only ones who think so. Buffett’s right hand man think we’re going to collapse in a couple of years.
February 24th, 2010 at 9:50 pm
Just added $50 bucks to my ING direct saving acct. The interest paid out is just above 1 percent and falling like a rock. Soon I’ll be asked to pay the bank for taking my money. Then I’ll tell them to go fuck them selves and I’ll be out in a flash with my cash. lol
Even CD’s are a lousy investment. I remember back when a 6 month CD would pay 10%. Those days are long gone.