Latest banks to fail...but I am curious

[Atash Hagmahani]

http://finance.yahoo.com/news/Banks-shuttered-in-Fla-Ill-Md-apf-2958911227.html?x=0

Is the rate of bank failures going to pick up? Because in theory an awful lot of small banks are in trouble. But just a trickle are being shut down on any given Friday. I wonder if that has more to do with the federal regulators not being able to handle any more than they already are.

[MountainMeg]

From what I've seen, there have been a lot more FDIC actions rather than straight failures.  With the FDIC broke I would suspect that the FDIC won't take a bank unless there is absolutely no other choice.

[opsec]

So what happens to a bank that the FDIC won't absorb? Do the customers show up at the bank on a Monday morning to find a note taped to the locked door explaining that they depositors are out of luck because the bank is out of business?

[Atash Hagmahani]

Well, it hasn't happened yet, and I would guess that the Feds would be very unhappy if it did, because it would start a panic.

My guess is that there is probably a protocol for alerting the banking regulators to emergencies.

Meg, do you suppose that the Feds are planning some sort of crisis intervention for later in the year? Because I can't see how they can maintain the current pace much longer. Supposedly around 1000 banks are in serious trouble already.

With the FDIC broke

I'm curious how much they have left of their line of credit with Congress.

[opsec]

Good reason to have a stash of cash on hand.

[Mike]

This topic: that the FDIC is broke and insolvent and has looming liabilities....... should leave us all in a quandary.  There is no parallel in history that I know of. 

In the past, when an insolvent bank was discovered, there was a run on the bank.   The first-come got their deposits and the rest lost their savings.  Damage was limited to the insolvent bank(s).

Now we have an insurance Co., the FDIC, which has become insolvent and is increasing premiums and collecting them sooner.  The FDIC is also borrowing from the treasury.  What happens when one borrows to cover debt?  or borrows just to continue operations?

It is generally not a good idea to lend to those kinds of borrowers.   That is what is being asked of the Treasury.  And the treasury will probably do it (lend to the FDIC) because that is their mindset.  Those in the treasury have never scrapped for their cash and scrimped to save it.  They don't understand that you are more careful with other people's money (i.e. taxpayers') than you  are with your own.

Then there is the little matter of the deficit.  Which means the Treasury is a borrower.  Imagine that?  The FDIC is looking to a fellow borrower/debtor to save them.

****************

http://market-ticker.denninger.net/archives/1995-FDIC-Report-We-Were-Broke-And-Getting-Broker.html

I know, "It's old (2/23/2010)."  But it is pertinent.

700 troubled banks is bad, and far worse than 552 last quarter.

But the $20.9 billion loss in the deposit fund, after losing $8.2 billion last quarter, is beyond bad and well into the psychotropic medication range.

Remember that the Deposit Insurance Fund went negative last quarter.  Now it has lost another $20.9 billion.

What does the FDIC say?

    The agency hopes to make up that loss through advance payments by banks of $45 billion in fees

There's that "hope" word again.

Oh, once you've prepaid your fees, what happens if the losses continue?  Can't collect the same fee more than once, right?

That's what I thought.

"Each account insured to at least $250,000 through 12/31/2013 - so long as we can continue to borrow money from Treasury to pay you."

They leave that last part of the sentence out, of course.