FDIC Bank Closures as of April 30th, 2010

FDIC Friday Folly (as some people call it) is picking up the pace again after a relatively quiet February.

The first four months of the year 2010 saw 64 bank closures. In comparison, the first four months of 2009 saw 29 bank closures; the first four months of 2008, 2.

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FDIC Failed Banks in 2009: 140

Sorry for the tardy posting.

January 2010 already started with a robust number: 15 banks failed.

And remember, FDIC is broke. As of September 2009, its DIF (Deposit Insurance Fund) was negative $8.243 billion. When FDIC releases its Quarterly Banking Profile for the 4th Quarter 2009 sometime this month, it's safe to assume it is in the hole for over $10 billion, guaranteeing $5.3 trillion (or more) deposits.

These days, numbers in billions fail to surprise anyone, don't they? If this is not inflation, I don't know what is.

For this inflated perception, we can thank Henry M. Paulson for throwing $700 billion number for the bank bailout - any number that's big enough to scare people into passing the bill. Up till then, George Bush's stimulus of over $100 billion was considered extravagant spending.

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October Bank Closures Jump to 20

Highest since July.

And as Chairman Bair of FDIC expresses her anger against banks "resisting the reform" (the article is linked below the chart), her own organization remains technically insolvent. In fact, it has been insolvent since June 2008 when the reserve ratio dipped below the mandated 1.15% (see my post), and all the while she has kept repeating the mantra "No one lost money with us, your money is safe with us." (Of course it is safe, who does she think it is ultimately back-stopped by? Us! We pay money so that we may have our money back.)

Anyway, bank closures in October ballooned toward the end of the month to 20, the second highest this year after July (24). By their own admission, DIF was already negative at the end of September.

And here's Chairman Bair's anger, as summarized by an article by Reuters:

"Sheila Bair, chairman of the Federal Deposit Insurance Corp, said on Monday that some in the financial services sector are trying to argue that regulatory reform would stifle innovation and impede economic growth.

""That makes me angry," Bair said in a text of remarks prepared for a lecture at Kansas State University.

"Bair said the extreme market interventions that have occurred during the recent financial crisis have been difficult for her as a life-long Republican and market advocate.

"But she said they were necessary and that government needs even more tools to discourage financial firms from getting so large that taxpayers are forced to provide assistance if the firms become unstable.

""The government has been going into places where we don't want to be," Bair said, but she added: "We simply cannot afford to maintain the status quo.""

Her institution bends over backward to maintain the status quo by helping big banks in every way she can so that they not only survive but prosper. Remember the backdoor deal that almost went through last year regarding Wachovia? Citigroup was going to get that bank at a bargain price, with all the bad assets backstopped by FDIC.

And talk about financial innovation. Again, her institution is on top of that too. FDIC has been backstopping assets of the failed banks as purchased by new owners and backstopping bond issues by financial institutions while failing to maintain even a ridiculously low reserve. Compared to FDIC, Bear Stearns and AIG are the paragons of conservative operation.

One of the unintended consequences of FDIC's backstopping the mortgage losses of the failed banks is that the new owners would rather foreclose on the property because it is so much more profitable for them. It's free money. (For more, please read the first link (Is FDIC Killing Short Sales?) in my post in early October.)

To me, for her to say she is angry at the financial institutions is totally laughable. I even get angry myself when I hear her squawk about protecting consumers while FDIC backstops mortgage losses for billionaire investors who foreclose on the homeowners. I share the sentiment that Karl Denninger has about her.

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Bank Closures in September 2009

Georgian Bank in Atlanta, Georgia was closed by FDIC today, bringing the September bank closures to 11. This year, 95 banks have failed so far, compared to 29 in 2008.

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FDIC Wants to Be Bailed Out

by banks, not by Treasury.

FDIC, whose DIF (deposit insurance fund) was meager $10 billion (see my post) at the end of June to cover close to $5 trillion deposits (and remember that was before the record bank closures in July and very costly closures in August. The fund must be very close to zero, if not negative already), wants to borrow money from the banks from which it collects deposit insurance fees.

FDIC could seek bailout from banks (9/22/09 AP via Yahoo Finance)

"WASHINGTON (AP) -- Regulators have approached big banks about borrowing billions to shore up the dwindling fund that insures regular deposit accounts.

"The loans would go to the fund maintained by the Federal Deposit Insurance Corp. that insure depositors when banks fail, said two industry officials familiar with the conversations, who requested anonymity because the plans are still evolving.

"Regulators also are considering levying a special emergency fee on all banks, charging regular fees early or tapping a $100 billion credit line with the U.S. Treasury, the officials said."

Let's say I am an insurance company. I insure your home, but times have been good and we are all prosperous so I will not collect insurance premiums from you for a decade. Don't worry nothing will happen. Then, Santa Ana wind blows and lightening strikes, and voila there's a massive fire in your area. Your home burns down. But I'll say, sorry, no money to give to you. In fact, I am broke. So I am going to borrow from you so that I can pay you and others. I'll pay you good interest on it, how about 25 basis points above the Fed funds rate? While I'm at it, I'll assess one-time emergency fee to replenish my insurance fund quickly. What do you say?

You would take me to court.

But wait, there is a possibility that this may be another disguised "rescue", actually, of big, national banks. There is also a possibility that this is a coordinated move with the Federal Reserve. Without the details known at this point, it is my pure conjecture. But here's what I see may be happening:

1st possibility: disguised "rescue" plan

FDIC would accept "loan" in the form of any type of asset from the big banks. Instead of cash or cash equivalent, the banks would give loans (of dubious quality) on their books as "loans" to FDIC, and FDIC would accept at face value and pay interest on the "loans" on top of it. (Where would that interest payment money come from?)

2nd possibility: coordination with the Fed to control excess reserves

The banks will create new loans to FDIC out of the excess reserves at the Federal Reserve. The Fed would be happy that the excess reserves are not escaping into the real economy to cause inflation. Banks would be happy that it would earn (probably) better interest than at the Fed, and their balance sheet get stronger with very safe loan to FDIC (ultimately backed by taxpayers). FDIC would be happy to have freshly minted money knowing it actually didn't cause much distress to the big banks anyway.

Just last month when FDIC issued the quarterly banking profile for the 2nd quarter (it is linked in my post), FDIC chairman Sheila Bair didn't sound much worried about the dwindling DIF, and kept repeating the mantra of "Our resources are strong. Your insured deposits are safe."

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Bank Closures 1st Week of September 2009

The first week of September ends with five banks closed on Friday.

I do hope the July number was a blow-off top formation, but there are people calling for 1000 more bank failures in the next two years. That would be 10 failures per week for two years..

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FDIC Update: August Bank Failures 15, DIF $10 Billion (Do They Have A Plan?)

So FDIC closed three banks on Friday, bringing the August bank closure numbers to 15. "What an impressive improvement from July, when 24 banks failed!" would be the "green shooters" remark.


On Thursday FDIC finally released its Quarterly Banking Profile for the 2nd Quarter. It must have been a much-awaited event, because I couldn't get on to the FDIC's website for quite a while after the release of the report at 10:00 AM EST. All I was interested in was to find out what happened to the DIF (Depositors Insurance Fund), which was barely $13 billion or 0.27 reserve ratio at the end of March 31, 2009.

At the end of 2nd quarter that ended June 30, the FDIC's DIF, O miracle of all miracles, decreased by only $3 billion from the 1st quarter because, according to Sheila Bair, her institution managed to collect $6 billion from the member banks as additional assessment fees. Still, FDIC has only $10 billion of DIF, or 0.22 reserve ratio, and this is before the massive (so far) bank failures in July and very costly ones (Colonial Bank and Guaranty Bank, $6 billion) in August. FDIC estimates that bank failures will cost them $70 billion through 2013. But the chairwoman had this to say on Thursday's news conference:

"The FDIC was created specifically for times such as these," Sheila C. Bair said. "Our resources are strong. Your insured deposits are safe."

She also said this:

Asked about a possibility of tapping the Treasury, FDIC Chairman Sheila Bair said: "Not at this point in time. I never say 'never,' but not at this point in time, no."

Now, the congressionally mandated minimum reserve ratio for FDIC is 1.15%.

With that in mind, please take a look at this table. It shows the DIF balance and DIF-insured deposits over the 3 years, and the reserve ratio calculated from the two numbers. The reserve ratio dipped below the mandated minimum in the 2nd quarter of 2008, well before the banking crisis hit in earnest in September.

Why didn't the chairwoman act then? Why didn't Congress require that FDIC raise the assessment to the banks or force it to take the line of credit to replenish the fund? Why isn't Congress demanding that FDIC replenish the fund now? And why does Bair still refuse even now to recognize this 0.22% reserve ratio as danger beyond critical stage and refuse to use the line of credit?

She just keeps repeating the mantra "No one has lost the money with us."

Meanwhile, the emergency assessment fee imposed on smaller banks are taking the toll on their bottom line. FDIC has a line of credit of up to $500 billion with the Treasury Department, yet she refuses to draw from it. The only way to raise additional funds for DIF then is to assess another emergency fee, that will further penalize small banks disproportionately.

If I become more cynical than I already am, I would say Ms. Bair is doing it on purpose - to kill off as many small banks as possible to feed the big banks, even the foreign ones, as cheaply as possible. I can easily think of worse possibilities but those are not the good ones to contemplate right before going to bed...

OK, I found more details about DIF and the congressionally mandated minimum reserve ratio. I couldn't believe my eyes.. This is from March 2009 Journal of Accountancy Highlights:

"With the DIF reserve ratio at 1.01% at the start of the third quarter, the FDIC is required by the Federal Deposit Insurance Reform Act of 2005 to establish a restoration plan to raise the ratio to 1.15% no later than five years after establishing the plan. The plan to restore the ratio includes a combination of uniform higher assessment rates and other risk-based adjustments that place a greater burden of increased assessments on riskier institutions."

All the law requires is that FDIC devise a plan, and raise the ratio to 1.15% within 5 years after they devise the plan. So, by law, the chairwoman can simply sit on her hands doing nothing as long as she has a plan. And she doesn't even seem to have a plan, but she assures us "No one has lost money with us."

This is getting surreal.

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Bank Closure Update - 8/21/2009

FDIC closed 4 banks today, including Guaranty Bank in Texas, bringing the August bank closure tally to 12. With the last week's closure of Colonial Bank and this week's Guaranty Bank, FDIC's reserve would be very close to zero at least, if not negative. (For more on later post. Stay tuned.)

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Bank Closure In July 09 - End Of Month

Now that's a green shoot. 24.

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Bank Closures Update 7/24/2009

FDIC closed 6 banks in Georgia and 1 in New York today. That brings the July tally to 19.

16 Georgia banks have failed this year, more than in any other state. The 64 bank failures nationwide this year compare with 25 last year and three in 2007.

Dow Jones Industrial Average managed to stay above the psychologically significant 9,000, ended the week at 9,093. It went up 3.99% this week. S&P 500 ended at 979, up 4.13% for the week. Nasdaq ended at 1,965, up 4.21% for the week. Small Cap Russell 2000 outperformed the major indices, up 5.63% for the week.

Financials ended the week flat. Commodities did very well, with the Commodity Related Equity Index (CRX) up 6.02% for the week.

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Bank Closure In July 09 - Mid-Month Update

July is shaping up to be the worst month in terms of bank closures since the current recession started. On Friday July 17, FDIC closed four banks (2 in California, 1 in South Dakota, one in Georgia). The total number of banks closed so far in July is 12.


Just remember: FDIC's reserve ratio as of March 31, 2009 was 0.27%. In other words, FDIC had $13 billion at hand at the end of March. This week's 4 bank failures cost FDIC over $1 billion.

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7 Banks Closed By FDIC In 1st Week Of July 2009

7 banks failed today, according to FDIC. That many banks failed in entire month of May, and this is just the 1st week of July.

The closures will cost FDIC $314.3 million. FDIC's reserve ratio as of March 31, 2009 was 0.27%.

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