The FDIC Reserve Is Gone

Rebel Traders reports that The FDIC Reserve Is Gone.

(emphasis mine) [my comment]

The FDIC Reserve Is Gone
by Chuck on November 24, 2009 at 10:41 pm

The cash reserves needed for the FDIC to keep paying depositors at failed banks has all been used up. Don't panic (yet anyways), the FDIC has an open credit line to the Treasury Department (uh, that means us tax payers) that will keep the FDIC floating in cash to keep paying out money to Grandma and Grandpa at the failed banks.

You see, the FDIC is supposed to be self maintaining, it charges banks a fee to have their deposits insured. Think of it as the banks paying an insurance premium. That money goes into the FDIC kitty and is used to pay depositors when a bank fails. That is all well and good except when the financial system blows up like it has over the past 2 years.

As of today's quarterly report issued by the FDIC they are now broke, and I mean that in the literal sense.

FDIC deposit insurance fund now -$8.2B v $10.4B last quarter

Yep, they are broke, no money left in the cash drawer. So what now? As long as the FDIC has an open credit line with the Treasury then any bank that fails it will be the taxpayers who reimburse Grandma and Grandpa.

Think of it this way: you have a checking account at (let's pick a name out of the air) ShittyBank and they get closed by the FDIC. Your very own money will be reimbursed to you via the FDIC insurance fund, but you will actually be paying yourself back in part because taxpayers will be on the hook to keep the FDIC floating in funds. So in the end you still lose some money.


The FDIC has recently asked member banks to pre-pay insurance premiums for the next 3 years in an attempt to fund the reserve pool as quickly as possible. But many smaller banks are objecting to this as it will further cut into their balance sheets. Besides, will prepayment of 3 years of insurance premiums be enough to cover the increase in bank failures that still lie ahead? I think not. In which case it will eventually end up in the tax payers lap.

Not only has the FDIC announced that their cash drawer is empty, but the number of banks on their hit list has grown yet again. That number now stands at 552 compared to 416 just in the previous quarter.

Recall that just a couple months ago the FDIC opened a satellite office in Florida with a staff of roughly 500 to deal with the bank issues (aka future bank failure) in the Southeast region. Expect more bank failures from Florida and surrounding states in the future.

The Big Picture gives us some humor about the situation.

Turkey Day (AIG, GM, C, FNM, BAC)
By Barry Ritholtz - November 26th, 2009, 7:00AM

I'm flying off to Chicago for Turkey day, but I had to pass along this 'toon. Its funny because its true: [Agreed]


.

My reaction: The FDIC is broke.

1) The latest quarterly report shows that FDIC deposit insurance fund is now -$8.2B vs $10.4B last quarter.

2) In its desperation for cash, the FDIC has recently asked member banks to pre-pay insurance premiums for the next 3 years. This pre-payment seems unlikely as FDIC fee increases are already crushing small banks.

3) The number of banks on the FDIC's hit list has grown yet again. The number now stands at 552 compared to 416 just in the previous quarter.

4) A couple months ago the FDIC opened a satellite office in Florida with a staff of roughly 500 to deal with future bank failure in the Southeast region. Expect more bank failures from Florida in the near future.


Conclusion: Back in July, I explained how the FDIC running out of funds was another factor setting a time frame on the dollar's collapse.

Bank failures will get worse, especially when states like Illinois and California start cutting back on spending to balance their budget. Meanwhile, the FDIC's Deposit Insurance Fund plunged to an all time low of just $13 billion as of March 31 (0.27% of $4.8 trillion in insured deposits). It is worth nothing that since March 31, 31 new banks have failed, including the biggest one so far this year, BankUnited. With today's $314.3 million, it is a good bet that most of the $13 billion has been spent in the past 3 months.

Within the next three months, it is very likely that the Deposit Insurance Fund will run dry,
forcing the Fed to monetize the deposit of failed banks. So you can add the FDIC running out of funds to the list of factors setting a time frame on the dollar's collapse.

This entry was posted in News_Developments, Treasury, Wall_Street_Meltdown. Bookmark the permalink.

5 Responses to The FDIC Reserve Is Gone

  1. Numonic says:

    I've been following the FDIC issue in Eric's blog of Gold Market Reaching a Breaking Point. I've been keeping up with the amount the FDIC has and it's draw down rate per month. And we are at a pivotal point right now. Due to the fact FDIC only lost 2.5 billion in November, if FDIC loses less than $6.5 billion in December then the rate will decrease for the first time since the crisis began and if it doesn't lose less than than $6.5 billion then the month of December will see the largest FDIC fund draw down since the crisis began. So regardless something big is happening in December. Also the FDIC still has around $21 billion in the fund even though that money is promised for banks on the problem list. At the current rate of draw down, i calculate the fund will be bankrupt by the end of February 2010. And the fact that banks are still going to the FDIC fund when the Fed is giving away cash for free (0% funds rate) tells us that the Fed/printing press won't be able to replenish the FDIC's fund when it runs out. If the Feds buying of assets were working, banks wouldn't need to take from FDIC funds. So if you think this can be solved with the printing press think again. The printing press is already involved and it is failing to give the banks enough cash as banks are still taking from FDIC fund to make up for the lack of cash being recieved through the printing press. You can read my my writings on the FDIC fund and bank failures in this blog article: http://www.marketskeptics.com/2009/10/gold-market-reaching-breaking-point.html

    A good site to keep up with bank failures and what it cost the FDIC is:

    http://blogs.reuters.com/commentaries/?s=bank+failure+%2341

  2. Sebastian says:

    The fact that people still have deposits left, and thus there is a need for insurance by the FDIC, could be seen as a good sign for the US economy - not everyone is drowned in debt. And also that they trust the dollar enough to keep their money in the bank. But my bet is that they later (in some months from now) will regret badly that they didn't place all their money in gold bars.

  3. Jimmy says:

    An opportunity: Goldprice is going down, yet -3.33%

    Buy it before the Chineses will do it...

  4. Numonic says:

    Irony Jimmy, you're talking about gold in the FDIC blog and I'm talking about the FDIC in the gold blog.

    http://www.marketskeptics.com/2009/10/gold-market-reaching-breaking-point.html

    FDIC lost $2.384 billion today bringing the fund to $18.405 billion. That's $2.384 billion in one Friday and I know I did the same thing last month when the first Friday of the month had a big draw down and the rest of the month didn't but a couple more draw downs of this magnitude will keep the average rate of draw down on track and this will in fact be the month with the largest FDIC fund draw down since the crisis began. Let's see what the next Friday's bring.

    http://money.cnn.com/2009/12/04/news/economy/bank_failure/

    http://www.calculatedriskblog.com/2009/12/bank-failures-125-126-two-more-in.html

    http://www.calculatedriskblog.com/2009/12/bank-failures-127-128-down-goes-amtrust.html

    http://www.calculatedriskblog.com/2009/12/bank-failure-129-benchmark-bank-aurora.html

    http://www.calculatedriskblog.com/2009/12/bank-failure-130-greater-atlantic-bank.html

    For a second I thought the crisis was over, just for a second.

  5. ????? says:

    its still going down so far ?????????

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