(snip)"FDIC Closes More Banks
Saturday, July 26th, 2008 at 10:30 AM
The FDIC moved this weekend on two more banks. I see a real problem with this week’s bank closures in that the FDIC pissed away $862 million covering only $3.233 billion in deposits. What does this suggest? Perhaps that the FDIC is waiting too long to act, thus pushing up the costs of bank closure? I would submit that is indeed the case. The net result is that the FDIC has about $46 billion left after the IndyMac closure, and now we see two small banks representing a tiny 0.03% of total bank assets, ripping through almost 2% of the FDIC’s remaining stash, bringing them down to around $45 billion.
From the FDIC release:
The cost of the transactions to the Deposit Insurance Fund is estimated to be $862 million. The failed banks had combined assets of $3.6 billion, .03 percent of the $13.4 trillion in assets held by the 8,494 institutions insured by the FDIC.
You can decide for yourself about the credibility of government institutions like the FDIC right now. If the Gente panic out of banks, these regulators have only themselves to blame, not bloggers. Should you feel the need to scrutinize further the banks they are charged with regulating, there are some independent sources to look over. In early to mid August, the FFIEC puts out “call report” data on all FDIC regulated banks. This article suggests how to evaluate these numbers, pointing out that reserving for losses does not occur until loans are 90 days delinquent (Texas ratio). The author recommends looking at the trajectory or rate of increase of the 30-89 day delinquents (California ratio). The same author has a good description of the Texas and California ratios used to analyze banks.
A reasonable person should be concerned about a Texas ratio above 25%, and also a fast moving trajectory where delinquencies are growing at a fast clip. That was the case generally for banks in the second quarter reports, in many cases shockingly so. A reasonable person might also be concerned about having deposits in high Texas and California ratio institutions in an environment where the FDIC needs to use 2% of their dwindling stash closing two small banks representing 0.03% of bank assets. Don’t be caught in another “Whodathunk” moment is all I can advise. "(snip)
An extremely important point here is that the FDIC no longer appears to be able to arrange 'shotgun weddings' for troubled banks ... such that it now has no alternative other than taking over the troubled banks itself and paying off depositors out of it's own dwindling funds. With at least 100 banks on the 'watch list', the FDIC will quickly exhaust it's fund reserve if even a dozen sizeable banks fall over the precipice. Then what ?



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