FDIC insurance fund closes quarter $8.2 billion in debt

[Winehole23]

FDIC insurance fund closes quarter $8.2 billion in debt (http://rawstory.com/2009/11/fdic-insurance-fund-closes-quarter-82-billion-debt/)


By Stephen C. Webster (http://rawstory.com/2009/author/stephencwebster/)
Tuesday, November 24th, 2009 -- 9:50 pm



http://www.rawstory.com/images/new/piggybank.jpg


As the number of problem U.S. banks swells to the hundreds, the Federal Deposit Insurance Corporation is increasingly hard-pressed to fill in the gaps where institutions have put depositor's funds at risk.

Unfortunately, a dire prediction made by government officials in early 2009 has come true: the FDIC's deposit insurance fund is now broke, according to published reports.

"The deposit insurance fund dropped by $18.6 billion during the third quarter of 2009 to negative $8.2 billion, as the Federal Deposit Insurance Corp. set aside $21.7 billion in provisions for additional bank failures," The Wall Street Journal reported (http://online.wsj.com/article/SB125907631604662501.html). "This is the second time in the agency's history that the balance has fallen into negative territory."

In March (http://rawstory.com/news/afp/FDIC_warns_US_bank_deposit_insuranc_03052009.html) the FDIC took steps to stave off the possibility that its insurance fund would run dry, instituting new fees on banks, forcing them to pay to protect consumers.

The head of the Federal Deposit Insurance Corporation, Sheila Bair, wrote to bank leaders declaring that "without these assessments, the deposit insurance fund could become insolvent this year."

According to the FDIC's most recent quarterly report, there were 552 "problem" banking institutions in the U.S., the most since the end of 1993. "In its state of the industry report, the F.D.I.C. reported that banks posted a $2.8 billion gain in the third quarter, after a $4.3 billion loss in the previous period," The New York Times (http://www.nytimes.com/2009/11/25/business/economy/25fdic.html) reported. "The number of bad loans of nearly every stripe — credit cards, mortgages, small business and commercial real estate — continue to grow, albeit at a slower pace."

BizJournals added (http://pacific.bizjournals.com/pacific/stories/2009/11/23/daily15.html): "Fifty institutions failed during the third quarter, bringing the total number of failures in the first nine months of 2009 to 95. As of Nov. 21, 124 banks have failed nationwide."

"The FDIC has not yet accessed a temporary $500 billion fund of capital it has available to it from Treasury for the insurance fund," Marketwatch notd (http://www.marketwatch.com/story/fdic-number-of-troubled-banks-rises-to-552-2009-11-24-10300).

"The FDIC estimates that bank failures will cost the agency as much as $100 billion over the next five years, with the majority of the losses taking place in 2009 and 2010. The agency may require banks to pay additional assessments to cover losses to the fund if bank failures expand in greater numbers than anticipated by the agency."

When banks insured by the FDIC are seized or declare bankruptcy, the agency returns depositors' funds up to $250,000.


Read the FDIC's full Q3 2009 report (http://www2.fdic.gov/qbp/2009sep/qbp.pdf) [PDF link].

[Wild Cobra]

So?

I'd rather give them all they need to cover people's guaranteed money than give money to the elitists who have addictive financial gambling problems.

You have to let addicts hit rock bottom, or else they never get well.

[Winehole23]

So?So, that's another $500 billion dollars on the deficit.

[Winehole23]

552 banks on the FDICs list of troubled banks (http://money.cnn.com/2009/11/24/news/companies/fdic_list/index.htm).

[Bender]

is there an actual list of troubled banks available, or they don't want anyone to know which ones...?

[Winehole23]

is there an actual list of troubled banks available, or they don't want anyone to know which ones...?The list is kept secret to prevent a run on the banks. After all, not every bank that is troubled will fail.

Here's a few sites that rate banks: http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx

http://www.bauerfinancial.com/home.html

http://v3.moodys.com/ratings-process/Bank-Deposit-Ratings/002002001015

[Wild Cobra]

So, that's another $500 billion dollars on the deficit.
And another reason we shouldn't have bailed any out. Let the bad ones fail, and pay the FDIC insurance. Let the ones who did business right, have money loaned to them to loan out.

[admiralsnackbar]

And another reason we shouldn't have bailed any out. Let the bad ones fail, and pay the FDIC insurance. Let the ones who did business right, have money loaned to them to loan out.


Do you have any idea how screwed our government purse would be if the FDIC had to pay out to 90% of bank users while simultaneously having almost no banks to grant credit for businesses and consumers? Double whammy, WC -- we'd be better off moving to Somalia.

[Wild Cobra]

Do you have any idea how screwed our government purse would be if the FDIC had to pay out to 90% of bank users while simultaneously having almost no banks to grant credit for businesses and consumers? Double whammy, WC -- we'd be better off moving to Somalia.
We don't have that many banks that will fail. Yes, it's a big hit, but a bigger hit to bail the banks out!

[Winehole23]

We don't have that many banks that will fail.116 banks have failed this year. 552 banks are on the FDIC'S troubled bank list, up 33% from 2Q. That's with the bailout and over $2 trillion in Fed loans. You're saying it wouldn't have been much worse without?

[admiralsnackbar]

We don't have that many banks that will fail. Yes, it's a big hit, but a bigger hit to bail the banks out!

I can't agree, man. Short-term, you're right... but long-term, you're looking at decreased GDP and entrepreneurial activity brought on by lack of credit, resulting in decreased tax revenue for at least 10 years as new banking institutions are formed. Sum that to the out-lay the FDIC would be on the books for, and you're looking at the Great Depression times 10. Like I said: lose, lose. A bankrupt government representing a bankrupt polity.

I wish we could have let those crooks fail, too, but the collateral damage to innocent people (ie, the rest of the country) would have been uuuuuuuuugly.

[Wild Cobra]

116 banks have failed this year. 552 banks are on the FDIC'S troubled bank list, up 33% from 2Q. That's with the bailout and over $2 trillion in Fed loans. You're saying it wouldn't have been much worse without?
I'm saying it's cheaper to let the banks fail and pay the FDIC costs than it is to float a bank that will likely fail anyway, due to continued bad business practices. Then you have two bailout costs.

[admiralsnackbar]

I'm saying it's cheaper to let the banks fail and pay the FDIC costs than it is to float a bank that will likely fail anyway, due to continued bad business practices. Then you have two bailout costs.

The difference is that in the bailout scenario, you actually have a chance of recouping your investment, whereas in a "let 'em die" one, you are guaranteed to eat the cost.

[panic giraffe]

wouldn't the solution to this be just fix the banks that are failing?

[Wild Cobra]

The difference is that in the bailout scenario, you actually have a chance of recouping your investment, whereas in a "let 'em die" one, you are guaranteed to eat the cost.
I'm not a gambler. If you want to float them your own money, be my guest.

You'll be surprised what creative minds will do if they have to fend for themselves. If they are worth saving, they can save themselves. Otherwise, they are too far gone to be saved.

[Wild Cobra]

wouldn't the solution to this be just fix the banks that are failing?
How?

[Winehole23]

You'll be surprised what creative minds will do if they have to fend for themselves. If they are worth saving, they can save themselves. Otherwise, they are too far gone to be saved.Uncontrolled debt-deflation doesn't just kill the insolvent and imprudent; the collateral damage can be massive.

Even well-managed firms will succumb. The scarcity of money and its corresponding appreciation in value makes what were previously sensible debt loads unbearable. Default, liquidation, unemployment and deflation are not discrete events, but become cascading, and feedback on one another if left unchecked.

Have you read Irving Fisher on debt-deflation, WC?

[Wild Cobra]

Uncontrolled debt-deflation doesn't just kill the insolvent and imprudent; the collateral damage can be massive.

Even well-managed firms will succumb. The scarcity of money and its corresponding appreciation in value makes what were previously sensible debt loads unbearable. Default, liquidation, unemployment and deflation are not discrete events, but become cascading, and feedback on one another if left unchecked.

Have you read Irving Fisher on debt-deflation, WC?
So you believe that year after year, making trillion dollar bailouts is the answer?

[admiralsnackbar]

So you believe that year after year, making trillion dollar bailouts is the answer?

How does this fall out of what WH said?

[Winehole23]

So you believe that year after year, making trillion dollar bailouts is the answer?No. Our economy doesn't suffer massive deflationary pressures every single year. It's an exceptional circumstance, not a normal one. (At least, I hope so.)

You may not recall that I was one of the posters here who thought debt-deflation was not seriously enough considered as a real alternative to what we did, and are doing, but I never pretended the cost and the related social pain wouldn't have been very, very severe.

You should reacquaint yourself with Hoover's response to the depression from 1929-1933, in tandem with Irving Fisher's essay on debt-deflation, to get a true picture of what me and AS are talking about. Debt-deflation destroys bad debt and bad businesses, enables price discovery and strengthens the currency; it also restores incentives for thrift and investment, for anyone with any money left. But it also destroys good debts, good debtors, good businesses and jobs. By the boatload.

This is the part you don't seem to get, WC. Along with the chaff, a lot of good wheat gets burned when the government gets out of the way of a defaulting banking sector.

[Winehole23]

How does this fall out of what WH said?It's one of the commonest faults here. Instead of persevering with actual comments, posters gallop ahead to their hostile inferences about other posters. It used to wear me out, big time, having my posts treated as tackling dummies rather than being taken at face value. Sometimes it still does, but when it does I try to put that down to my own lack of composure and focus.

In the long run, I think the heedless and unearned abuse of others has helped me become more patient, more restrained, more clear and explicit when expressing my own points. Rules of the playground. Whatever does not turn you into a pussy makes you stronger.

Anyway, there's only about three ways to deal with the inconsideration, impatience and obtuseness of other posters: go crazy, ignore it or get over it. I try to keep to the last two, but obviously, I'm not made out of stone.

WC used to drive me nuts on a regular basis. Happily, this is no longer the case.

[Winehole23]

Along with the chaff, a lot of good wheat gets burned when the government gets out of the way of a defaulting banking sector.Oh, and since the government guarantees deposits now, debt-deflation can wipe out the government too, like AS said upstream.