(snip)"The failure of some of the nation's largest banks in 2008, including Washington Mutual, Wachovia and IndyMac, and scores of smaller banks this year came at a price. The Federal Deposit Insurance Corporation's fund that insures the country's deposits now stands at $10.4 billion, down from $45.2 billion the prior year.
Jim Bianco, president of Bianco Research in Chicago doesn't believe depositors need worry, because the government has the power of the printing press to make good on FDIC insurance. But he is troubled. "As a taxpayer you should be concerned because this could be another potential drag and possibly a significant drag on the U.S. Treasury and bloat the already record federal deficit," he says, echoing a Wall Street Journal editorial on Tuesday, suggesting the FDIC may be the next entity in need of a bailout.
84 banks have failed this year, and the problem list of banks continues to grow, 416 as of the end of June. "They've got a bunch of huge open ended liabilities should the banking system continue to deteriorate and it could get ugly very, very fast for them," Bianco worries. As we learned during this banking crisis, these things can pick up steam in a hurry.
With that in mind the FDIC is forced to raise their insurance fees, putting added pressure on already struggling smaller and regional banks. Community bankers Bianco speaks to, he claims are being punished twofold. "They're livid about it because a lot of these guys are just barely hanging on and their net incomes are pretty much equal to the fees they have to pay to the FDIC." Plus, the troubles facing the FDIC are a result of toxic assets, "that a lot of community banks never, not only trafficked in, but don't understand to this day."
The economic impact is significant: Without local banks lending, hopes of a V-shaped recovery are slim to none. Community banks are the ones "lending on Main Street USA" "(snip)
from
The major points here seems to be that
A. the FDIC is going to go broke in the near future ... leading to a FED bailout and an increase in FDIC insurance premiums charged to ALL banks
B. the regional / local banks are being charged the same high FDIC premiums as the international banks, even though regional / local banks have not been the banks that are troubled / failing ( they don't have a whole lot of derivatives and subprime on their books)
C. the increased FDIC insurance premiums will essentially erase the profit margin for small / regional banks ... meaning that they will need to raise interest rates on loans / credit cards and drop interest rates on savings accounts / CD's in order to break even. Also, with no profit margin to cover write-offs, small / regional banks will be even less likely to approve new loans to customers with less than stellar credit ratings.



Reply With Quote

Bookmarks