The FDIC Is Broke - Now What?

Holy cow I just noticed that one of those banks, Union Bank of Gilbert, was the bank I used for school finances while going to college in AZ.  Thankfully I stopped using them and closed that out in '05.  Bank closures and FDIC reliability is definitely starting to go from a abstract/potential hazard to one that’s getting rather close to home.
Thanks again Chris for the valuable info… even being dog-tired from travelling hundreds of miles through the remote stretches of Canada I still make time to check up on the site and your reports!

  • Nickbert

The writing is on the wall. Number one on my to-do list for today: “Find a new bank.”Money mouth

Oh by the way – the reason the FDIC’s ‘special levy’ is due on Sep. 30th? That would be the last day of Usgov’s fiscal year. So this one-shot, last-day cash infusion will make FDIC’s annual results look merely bad, rather than catastrophic.
As any business owner knows, the unannounced flip side of the FDIC’s fiscal year-end maneuvering will be to withhold payments due until after Oct. 1st if possible. Then those expenses will go into the next fiscal year.

If FDIC is going to have a cash-flow crisis, probably they will time it for October. Kongress will be in session, and FDIC can plead for emergency funds, along with a rabble of other public and corporate mendicants. The regretable situation will be treated like a hurricane – an unforeseen, tragic phenomenon, that no one could have foreseen or prevented. But alert KongressKlowns rode to the rescue when the alarm was sounded.

Re-elect them, each and every one, my fellow depositors! Who’s yo daddy? Kiss

FDIC:  Federalized Delusional Insurance Coverage

Good article from Mish today on FDIC and reported-loan-value-accounting:

Here is an interesting Email from a Bank Owner and CEO regarding As of Friday August 14, 2009, FDIC is Bankrupt ABO, who as been in the business 30 years, writes:
The Next Bubble To Burst Inquiring minds are reading Next Bubble to Burst Is Banks’ Big Loan Values, an excellent article by Bloomberg columnist Jonathan Weil.

Check out the footnotes to Regions Financial Corp.’s (RF) latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.

Below is a nearly perfect example of accounting shenanigans as they pertain to banks.
Read it and weep:

If you examine second quarter earnings reports carefully, you’ll discover no basis for enthusiasm. The so-called “improved” bank earnings we’ve seen, over the last two quarters, are mainly the result of creative accounting. There has been a widespread failure to mark down the value of assets deeply in the red.

The “mark to market” rule is gone, and banks are taking full advantage. However, since 1993, they have been required to report the fair market value of their holdings annually. A new rule requires the disclosure every quarter. So, in spite of the removal of mark to market accounting practices, we’ve got more data to work with now than ever before. Big banks are adept at changing the rules of the game, but the numbers disclosed in many recent 10Q quarterly earnings reports tell a very depressing tale.

Actually, even under the previous “mark to market” rule, commercial banks were allowed to mark assets that they were allegedly keeping “for investment” and “not for sale” to imaginary values.

This was a huge hole in the rules, through which a great deal of mischief was wrought. Banks have been marking “investment” assets to fake values for a long time. But, that doesn’t change the facts. No bank would give you a loan based on tainted collateral, so why would you invest in a bank that holds tainted collateral to back its loans, when the bank would be insolvent if it were forced to repossess or foreclose and sell the collateral, especially at a time when repossessions and foreclosures are soaring?

A close reading of earnings reports shows that banks are carrying assets at “values” that are inflated far above fair value. Wells Fargo (WFC) shows on page 120 of its report that the fair market value of various assets is actually $34.3 billion less than the amount they are being carried at.

Bank of America (BAC) shows, on page 79, a similar unwritten-down “loss” of $64.4 billion; Regions Financial (RF) shows on page 37, 22.8 billion of unwritten down losses, and this is more than its shareholder capital of $18.7 billion and, under a strict mark to market standard, the bank would be considered insolvent;

SunTrust Banks Inc. (STI) has a $13.6 billion gap as of June 30, 2009, and that amount exceeds its $11.1 billion of Tier 1 common equity; KeyCorp admitted that its loans were worth $8.6 billion less than the value the bank carries on its books; its Tier 1 common was just $7.1 billion.

Imagine if we marked all these assets to market value? That would put all these banks very close to failure.

Yet, on August 14th, 2009, a rather humorous event occurred. Nearly insolvent BofA-Merrill Lynch, upgraded the even more insolvent Regions Bank to a “BUY”. While other stocks fell, Regions Bank stock rose by 8.46%!


Nice move BoA!  How does one upgrade a technically bankrupt and insolvent institution and sleep at night? The odds are that BoA, or someone hey knew, had a bunch of Regions Bank stock to sell.  I suppose if they sold it, they slept soundly as that's what passes for financial morality these days.

I think it’s important to illuminate “the game” that Wall Street plays and the BoA upgrade of Regions Bank shines a bright light on their dark practices.

But be sure to also note all of the other large banks that are technically insolvent.  Their only hope is that growth will soon return allowing them to slowly dig out from under their crushing loads of bad debt.  

Good luck with that strategy.

You know, I hate to pick on folks when they’re on the beach at Mykonos and Ibiza, and can’t defend themselves. It seems a little unfair.
But ask yourself – what do you do before going on vacation in August? Responsible people either pay their bills in advance, or make arrangements so that the bills will be paid while they are away.

So, why did the 45 members of the House Subcommittee on Financial Institutions and Consumer Credit – the one which supervises the FDIC – go on vacation, knowing that the FDIC was going to run out of money two weeks after they split town?

Here on their own website (it’s the second subcommittee in the list) are the 45 irresponsible klowns who are gleefully junketeering round the world while the FDIC burns.

The chairman of the Financial Services committee, to which the subcommittee reports, is a garrulous slug named Barney Frank. He walked off the job too. Who elects these contemptuous stuffed-shirt clowns, anyway?


I spoke with my local bank manager today. He informed me that although he wasn’t sure he could talk specifics with me, but he did say that his banks’ FDIC payments had increased 12 fold this year. He said that the premium they paid the entire year of 2008 would equal LESS than the 1 month payment they make now.
Please correct me if I’m wrong but having the PPIP program insured by the FDIC means that the healthy banks will have to not only pay for the closures occurring weekly BUT they will also be on the hook for any future defaults on the toxic assets that eventually come due when the real estate market does not recover enough to substantiate the “mark to past market” accounting that (in their fantasy world) would allow China to reclaim their money on these assets they are buying through the PPIP program. If this is true, it begs the question regarding the FDIC and its’ only real asset left which is public confidence.

This same banker told be that there is a common belief amongst the industry that the ONLY thing that is preventing runs on banks now is the belief that the FDIC stamp on the counter is giving the public the ever discipating confidence that the FDIC will cover their depostis. What happens when the public puts this all together???

As we are all debating healthcare, the financial system is imploding. With the only real “insured” accounts being those of the banking oligarchs. 

Oct 1st, or thereabouts is going to be an intertesting time.
We have to remember Gov’t is run by human beings.  Not always good ones.

If that human being doesn’t think government can do any good, or they don’t care what government does.

This is what results when that happens and greedy people take advantage.

We can blame gov’t regulators, or regulations, but I’d rather point the finger at that particular person, AND who voted them in. 

Which in our case, invovles every political party, and every person who has voted. (and conversely not voted)

Gov’t isn’t the problem.  Gov’t run by stupid people, or greedy, is.

Great posts guys, I’ve been watching this stuff since 2003 or so when alot of the warning signs started going out.  The thing I learned mostly new from this, was the corrollation between small-mid sized being in the CRE market.  I wasn’t aware of that.  Thus as everything is collapsing, that specifically will be the trigger to take them down.  I’ve understood for at least a year about the coming CRE, but didn’t realize they are mostly held by the as of now, ‘safe banks’. 

This really is going to hit the fan at all levels.  I know that, most of you all know that, or suspect it or whatever, but to realize the linkage is pretty big. 

I also wonder how many ‘self made’ millionaires that have become such over the past couple of decades have lost all but 250k fdic insurance limit.

But it is something to be cognizant of.  Imagine if you had to wait a couple of months, or even 6 months or a year to get what you have in your bank account.  How is that going to help you pay your mortgage? To buy food, clothing, gas, utilities?  Credit card bills? If you’re a smoker, ciggarettes, if an alcoholic, alcohol? What about drug users?

I know the answer, we all do, it’s ‘you’re screwed’.

I can see that happening.  If Oct 1st or thereabouts is d-day, economically, then the FDIC will be 1 of many issues that they’ll be facing, probably not the 1st either.  At some point, the calls for austerity come.  At some point we will be made to believe this is how it HAS to be.  Which is bull, but will be what happens, and what we probably LET happen.  I have hope that we won’t, but to think congress will vote for a bill authorizing a full 250k for all the banks that are about to fail, or subsequently fail after Oct 1st,

Again they said they are insuring 6 trillion or so in deposits.  If even 11 percent of those have to be paid out, two things will occur.

1.  You can bet 6 trillion (hell maybe 50 trillion)  in deposits that WEREN’T insured will evaporate.  Those people will survive, but will they be buying the same amount of ‘stuff’ as they were before? Hell no.

  1. What would be needed by the gov’t to backstop 11 percent of 6 trillion would exceed the ‘banking bailout’ (as has been reported).

Again to pull from another article, 2012 is wishful thinking.  I’m thinking it is going to hit Oct 1st, 2009 (give or take 2 weeks), and if they can rig it now, this is the last year they can.  Thus Oct 1st 2009 or Oct 1st 2010 seems like it’ll be the day.  Of course, people can wisen up at any time.  If they do, the collapse could be ‘any day until then’.



There’s a lot of stuff around about bad FDIC numbers triggering a bank holiday.  When is there next quarterly report due out?  I expect we will getstrong ripples from any significant wave over hear in Europe.

Check it out:
NY Times:

So far, 81 banks have failed this year, including 45 in the second quarter. That, in turn, has put enormous stress on the deposit insurance fund as administered by the F.D.I.C. It has been drained to $10.4 billion in the second quarter, compared with $45.2 billion a year earlier.

Still, the bulk of that decrease comes from additional money that the agency has set aside to cover the cost of bank failures. F.D.I.C. officials will consider a second special assessment, on top of elevated insurance fees, toward the end of the third quarter to help replenish the fund.

It added $9.1 billion to the insurance fund in the second quarter from higher deposit fees on banks, and it may be able to recover more money by selling assets from seized banks.

Ms. Bair said that she did not anticipate having to tap an emergency credit line run by the Treasury Department, although she did not rule it out. “I never say never,” she said. (emphasis mine)


The FDIC to draw on its line of credit at Treasury soon

The number of problem institutions is still increasing. It was 252 at the end of 2008. It grew to 305 when the FDIC last reported. It is now 416.

Loan losses are increasing, not decreasing. Both the charge-off rate and the non-current loans and leases are increasing. They are at the highest level since data collection began.

The financial sector is clearly deleveraging as $303 billion fewer assets were in the system in Q1 and an additional $238 billion fewer assets were in the system in Q2.

The FDIC only has $10 billion left in the kitty. Clearly, more funds are needed to deal with eventual losses by failed institutions.