FDIC Problem Bank List Grows to 884

The FDIC announced the problem bank list, which is one step from walking the plank, being seized and shut down, grew to 884 from 860 in Q4 2010. Problem banks are now 11.5% of the 7,657 banks and savings institutions covered by the FDIC.

From the FDIC press release:

The number of institutions on the FDIC's "Problem List" rose from 860 to 884. Total assets of "problem" institutions increased to $390 billion from $379 billion in the prior quarter, but are below the $403 billion reported at year-end 2009. The rate of increase in the number of "problem" banks has declined in each of the past four quarters. Thirty insured institutions failed during the fourth quarter, bringing the total number of failures for the full year to 157.

The FDIC believes bank failures in 2011 will be less than the 157 of 2010. To date, there have been 22 bank failures in the first 7 weeks of 2011. Projecting the current 2011 closure rate onto all of 2011 would be 167. Wikipedia is keeping a tally of closed banks. This time last year, we had 20 bank failures.

The Deposit Insurance Fund is still in the red and went from a negative balance of -$8 billion to -$7.4 billion.

Here's the weird story. While bank failures and problem banks sprout up like mushrooms, the FDIC is reporting record Q4 profits of $21.7 billion. In Q4 2009, the aggregate commercial banks reported a $1.8 billion dollar loss.

Bank Failure Friday - just a small one

Bank Failure Friday has just one reporting this week.

Pinehurt Bank, Minnesota. Cost to the FDIC: $6 million.

The FDIC also released it's quarterly report. A negative $20.7 billion in the deposit insurance fund was considered a positive.

The number of institutions on the FDIC's "Problem List" rose to 775, up from 702 at the end of 2009. In addition, the total assets of "problem" institutions increased during the quarter from $403 billion to $431 billion. These levels are the highest since June 30, 1993, when the number and assets of "problem" institutions totaled 793 and $467 billion, respectively, but the increase in the number of problem banks was the smallest in four quarters. Forty-one institutions failed during the first quarter. Chairman Bair noted that the vast majority of "problem" institutions do not fail.

The Deposit Insurance Fund (DIF) balance improved for the first time in two years. The DIF balance – the net worth of the fund – increased slightly to negative $20.7 billion, from negative $20.9 billion (unaudited) on December 31, 2009. The fund balance reflects a $40.7 billion contingent loss reserve that has been set aside to cover estimated losses. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings. Combining the fund balance with this contingent loss reserve shows total DIF reserves of $20 billion. Total insured deposits increased by 1.3 percent ($70.0 billion) during the first quarter.

Regulators Asleep at the Wheel on Washington Mutual

The New York Times has gotten hold of a draft report blaming the FDIC and the Office of Thrift Supervision for not moving on Washington Mutual by lowering their rating. The official report will be released to the public next Friday. It appears the Office of Thrift Supervision received 15% of their assessment fees from Washington Mutual.

The two agencies that oversaw Washington Mutual, the investigation found, feuded so much that they could not even agree to deem the company “unsafe and unsound” until Sept. 18, 2008.

By then, it was too late. A week later, amid a wave of deposit withdrawals, the government seized the bank and sold it to JPMorgan Chase for $1.9 billion. It was by far the largest bank failure in American history.

FDIC Quarterly Report - Lowest Reserve Ratio on Record

The FDIC has released it's quarterly report and what pops out at you first is the fact the reserve ratio is currently negative.

FDIC reserve ratio Q4 2009

The Deposit Insurance Fund (DIF) decreased by $12.6 billion during the fourth quarter to a negative $20.9 billion (unaudited) primarily because of $17.8 billion in additional provisions for bank failures. Also, unrealized losses on available-for-sale securities combined with operating expenses reduced the fund by $692 million.

Accrued assessment income added $3.1 billion to the fund during the quarter, and interest earned, combined with termination fees on loss share guarantees and surcharges from the Temporary Liquidity Guarantee Program added $2.8 billion. For the year, the fund balance shrank by $38.1 billion, compared to a $35.1 billion decrease in 2008.

FDIC is now broke, wants banks to prepay fees up to 2012 to replenish funds

Remember all of the claims the FDIC would never run out of money? Well, they're broke.

The Federal Deposit Insurance Corp. is asking lenders to prepay three years of premiums, raising $45 billion, to replenish reserves drained by the fastest pace of bank failures in 17 years.

The insurance fund will have a negative balance as of tomorrow after 120 banks were shut in the past two years, and will be positive by 2012, the staff said. Banks failures may cost $100 billion through 2013 with half the cost already incurred, the FDIC said. The agency today rejected options for a second special fee or borrowing from the Treasury Department.

Small Bank Bail Out in the works

Looks like someone finally realizes that a whole gob of small banks failing can add up to systemic risk. Duh.

The Huffington Post is reporting a plan to bail out the smaller regional banks and community banks is in the works.

Treasury officials and regulators are weighing a fresh round of bailouts for banks that were deemed too risky to qualify for earlier aid.

Representatives from the Treasury Department, Federal Deposit Insurance Corp. and House Financial Services Committee discussed the plan by phone Thursday, said California Bankers Association Chairman Dan Doyle, who was on the call.

Looks like they are making it restrictive, the money will come from the existing TARP fund and the limit would be $5 billion in assets.

FDIC may seek bailout from banks

It's not just an irony, but a disturbing development.

(AP) — Regulators may borrow billions from big banks 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 industry and government officials familiar with the FDIC board's thinking, who requested anonymity because the plans are still evolving.
The fund, which insures deposit accounts up to $250,000, is at its lowest point since 1992, at the height of the savings-and-loan crisis. Ongoing losses on commercial real estate and other loans continue to cause multiple bank failures each week.