FDIC Low On Funds After Record Bank Failures In 2009
Given how many banks have failed and been taken over by the FDIC this year (84, including three yesterday), it's not one bit surprising that the FDIC isn't doing too well, funds-wise. It's down to $22 billion, the lowest the failed bank fund has been since the savings and loan crisis of the early '90s, when it needed to borrow money from the Treasury Department to keep going.
That's unlikely to happen this time—instead, the FDIC plans to keep a closer eye on currently troubled banks, and potentially raise insurance premiums in the future.
FDIC Chairman Sheila Bair said this week that bank failures will remain elevated as banks go through the painful process of recognizing loan losses and cleaning up balance sheets.
The total of 84 failures this year marks a sharp rise over the 25 last year, and the three failures in all of 2007.
She noted that the banking industry's performance is a lagging indicator and will continue to suffer even as the economy begins to improve.
They're keeping a more careful eye on new banks, too, changing capitalization requirements in order to prevent more failures.
U.S. bank failure tally rises to 84 for 2009 [Reuters]
Analysts Predict FDIC Will Charge Additional Fees to Prop Up Insurance Fund [American Banking News]
FDIC to Increase Scrutiny of New Banks [Wall Street Journal]
(Photo: Ryan McFarland)
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Actually the banks pass the FDIC charge along to customers. So expect less "free" accounts. Those on analysis have been paying it since the FDIC resumed charging it - they actually told banks since the mid 1990s to STOP paying the assessment since they had plenty o'cash.
Rather than suffer a death of a thousand cuts, we need to take the Too Big To Fail institutions and split them up into smaller, safer, more competitive units.
My concern is that the smaller banks failing are taking the watchdog's focus away from the elephant in the room, and we'll end up not doing the hard, gritty work that needs to get done now.
@Trai_Dep: This is why the low funds really makes me uncomfortable. What if a couple of really big banks suddenly could not keep up whatever charade they are playing and we have a couple of huge bank failures at the same time.
The fed needs to break up these huge banks like they did Ma Bell and put some serious restrictions on big banks. At the point a bank becomes huge they then pose a risk to the country and should be regulated.
I'm gonna bury a coffee can in the back yard.
According to reports, the megabanks aren't doing all that badly and it wasn't the banking business that got them into trouble as much as their mortgage divisions and investment divisions. The bigger concern is with the small banks and that's what the FDIC has been gobbling up and turning over to the megabanks. Of course this makes the megabanks even bigger which seems sort of counterproductive. Maybe it's time to re-institute Glass-Steagal (sp?) and get the banks out of businesses which are only tangential to banking. That worked for a lot of years.
@Trai_Dep: Charge a surcharge on FDIC insurance for banks above a certain size. Use well written rules so banks can't skirt it by creating subsidiaries (at least not legally).
This is why we need to move away from the traditional bank account. I say you instead focus on buying commodities that will only increase in value.
Lately, I've been buying shopping carts full of Werther's Original Hard Caramels. The population is aging, and the baby boomers will soon be losing their teeth. They want something sweet to suck on, and something they can give their grandchildren. Hard caramels never go bad, and the older the packaging, the more nostalgic the customers will be.
@Trai_Dep: Honestly, I'd like to see this administration take off the kid gloves and just plain tell the corporations that if they don't shape up and perform, the government will nationalize them and fire the executives. To the CEOs handing out bonuses, that's moral hazard, and to the public, that's a safety net. Yes, the neocons would freak out, but I'm starting to think that's their natural state when a Republican isn't in office. They're already screaming about euthanasia and death panels, so they're beyond bargaining with.
Thus far, we've been using a recovery system similar to what Japan did at the beginning of their Lost Decade. We seem to be smarter about it because of hindsight, but I still do worry about it.
Out of curiosity, can we legally break up the big banks with no signs of a cartel going on? I though the Ma Bell situation happened because there was one big phone company and no competition, not mainly because it was dangerous for one "too big to fail" phone corporation to be around.
@TVarmy: i think the trick would be to create a "megacorp tax". when your assets or your market cap exceed a certain size, or you become the dominant player in more than a few urban centers, you get slammed with an additional 15-20% tax.
the key to avoiding the tax is simple: divest your holdings.
@H3ion: yeah, but a big reason why the megabanks didn't get hit that hard was an injection of liquidity from the treasury. without those funds, many of these banks would have been grossly under-reserved & in some cases, insolvent.
small banks didn't have the same access to capital that these larger banks did. hence the issues.
@mac-phisto: Except that these small banks aren't failing because of liquidity problems now. They are failing the old fashioned way: they made loans that aren't being repaid, and the losses are eating their capital for lunch.
There was a decent article discussing this in the New York Times earlier this month.
@ShruggingGalt: But it wasn't the FDIC that told them to stop paying, it was congress: the FDIC needs their approval to get the authority to charge assessments.
@megusi: yes, but that's primarily b/c they didn't get to pad their balance sheet with government money. TARP injections allowed big banks to pad their assets enough so that losses didn't impact capital.
consider also that as part of the merger, the FDIC is eating the loss on many of these bad loans. it's similar to the bank of america/countrywide fiasco - i believe the government guaranteed $50 billion of loss in that transaction, protecting bank of america's capital from exposure.
excellent article btw.
so, we're giving/loaning banks money to raise their liquidity, but then the FDIC is going to turn around and charge them more for insurance? c'mon, you guys need to work together.