Is The FDIC Broke And Covering It Up?

[notesdev]

I have to wonder.

First, we have Corus, which reported a negative Tier 1 Ratio. That is, they are formally "in the hole" in terms of assets .vs. liabilities. This is never supposed to happen - but it did, "Prompt Corrective Action" be damned.

Next, we have Guaranty Bank, which also has a negative core capital ratio. They have been trying to sell themselves (gee, I wonder why?) for a while without success. Here's the relevant quote from their 8-K:

Based on these adjustments, the Bank’s core capital ratio stood at negative 5.78% as of March 31, 2009. The Bank’s total risk based capital ratio as of March 31, 2009 stood at negative 5.52%. Both of these ratios result in the Bank being considered critically under-capitalized under regulatory prompt corrective action standards.

Yet Prompt Corrective Action (PCA) - a law, by the way, not a suggestion - has once again not been followed.

Finally, we have Colonial. I made a nice chunk of coin shorting and PUTting that turkey last year, when their CEO (and a lot of other people) said they were "very conservative." Uh huh. My read of their balance sheet said they were (like many other regional banks) massively over-exposed to condo construction loans in..... you guessed it.... Florida (which incidentally is what killed Corus.) Oops. But here's the money quote on Colonial:

If the FDIC were to seize Colonial, it would be the sixth-largest seizure, by assets, in American history. Such a large failure could strain the bank safety net. Colonial has $20 billion in deposits, while the FDIC insurance fund has dropped below $15 billion. The FDIC wouldn't have to cover every dime, but when Florida's BankUnited, with $12.8 billion in assets, failed earlier this year, it cost regulators nearly $5 billion.

Add all three of these up and tell me what you think is going on?

These three are not small banks. They are significant regional institutions, unlike the tiny little banks that we hear about every Friday after the close of business.

Here's the nut to the story above: When BankUnited was seized note that the total loss on assets was some 40%. They were not in the hole by anywhere near that much according to their so-called "accounting." Neither was IndyMac, but they also created an enormous loss.

So what's going on here?


....

rest here:

http://market-ticker.org/archives/1283-Is-The-FDIC-Broke-And-Covering-It-Up.html

[BlooInBloo]

1. Why not just look at their balance sheet?

EDIT: Link provided. http://www.fdic.gov/about/strategic/corporate/index.html

[notesdev]

3. Those numbers are old

Those are 1Q numbers, and we're into 3Q already. In the meantime dozens of FDIC-backstopped banks have failed.

[unlawflcombatnt]

16. Am I reading this right? $13 billion in March 2009 ??

If I understand what the FDIC report says on page 10, it shows a balance of only $13 billion in March of 2009, down from a balance of $52.8 billion in March of 2008.

Is that right?

[dkf]

2. They already set up plans to get backstopped by the Treasury.

Bill Seeks to Let FDIC Borrow up to $500 Billion

By DAMIAN PALETTA

WASHINGTON -- Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

The Connecticut Democrat's effort -- which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner -- would give the FDIC access to more money to rebuild its fund that insures consumers' deposits, which have been hard hit by a string of bank failures.

http://online.wsj.com/article/SB123630125365247061.html

[notesdev]

4. That bill did not pass

FDIC currently has no additional backstop.

[dkf]

5. I guess they only have the $30 billion then?

Well we will sure hear if they need to ask for more. Its strange but I can't google any result of that bill. I hadn't heard it failed either.

[notesdev]

6. As of 1Q maybe, but what about now?

The FDIC hasn't been shutting banks down when it should have (according to law). The losses when these banks do go under are huge, thanks to the delay. So the question is, does the FDIC now have anything left, and if so, how much?

The $500B backstop bill was essentially tabled in the Senate; it came on the heels of $1.6T spending (EESA/TARP and stimulus) and was a nonstarter because of the political heat caused by excessive spending and the implication that if extended the FDIC would need it - a message the PTB definitely did not want to send while it was doing the pump-monkey thing in the market.

[Po_d Mainiac]

8. According to this chart (UNVERIFIED!)

The balance is $826,000,000.00

So it would appear that the FDIC is on the verge of having a negative balance sheet. Not a comforting thought for the first Monday of the Month. :scared:

[madrchsod]

7. technically the program is broke

for the last several years they did`t care if the banks made their fdic insurance payments.

[dixiegrrrrl]

9. No one seemed to have paid attention when this was predicted in 2008.

Deninnger is always on top of it. go back thru his stuff and it shows.
go to bankrate.com and rate your bank.

Colonial's troubles have been reported in the Mobile paper for weeks now.
and Sheila Blair's hands are tied, by Geithner and the Big Banks, who want to scavenge from the carcasses of the banks that go under.

[CoffeeCat]

10. I specifically remember...

...when Washington Mutual failed--there were a few lines in every major story regarding this massive failure. These few
lines clearly spelled out that the FDIC's resources were "stretched thin".

These lines screamed at me. I didn't hear boo from the MSM. No one even talked about the issue seriously.

WaMu's failure was nearly a year ago. So many banks have failed since then. But...their resources were 'stretched thin"
several months ago when WaMu failed???

If you'll also recall, Sheila Bair asked all banks to pay additional FDIC fees. These fees would allow banks to participate
in the FDIC insurance program. In effect, banks were asked to pony up more money to insure their deposits. The smaller banks
said there was no way to pay these higher fees. Larger banks could more easily manage higher fees, but most smaller banks
threw a fit. The end result---the fee strategy failed.

What happened next? Bair went to Congress and asked them to give the FDIC more money to shore up cash. Chris Dodd was
instrumental in ushering through that legislation, although I'm not certain it passed. Anyone?

In my opinion---all of this spells crisis. An underground crisis.

Who the heck knows what is going on now...

[SlowDownFast]

11. More from Denninger:

FBI RAID! (Colonial Bank Building, Orlando):
http://market-ticker.org/archives/1286-FLASH-FBI-RAID!-Colonial-Building,-Orlando.html

FDIC "Tells Banks" To Quit Cooking The Books!:
http://market-ticker.org/archives/1287-ROFL!-FDIC-Tells-Banks-To-Quit-Cooking-The-Books!.html

[dixiegrrrrl]

12. Good catch !!! I missed that, and have been reading Deninnger all morning.

Cannot escape the conclusion the FDIC is busted AND the goverment does not want anyone to know both FDIC and banks are insolvent.
The tip off was when the banks refused to pay any more into the insurance fund and Turbo Timmy refused to put any money into FDIC, but the bank closings kept happening.

I forget...who insures Credit Unions?

[CoffeeCat]

13. And so far with the banks closing...

...other banks have gobbled up these failed banks, correct?

Forgive my ignorance--but when a bank fails--does the FDIC pay the money to the customers of the failed
bank--even if the bank is purchased by another financial institution?

Or, does the bank that purchased the failed bank--use their money to cover those losses???

So far, with all of the failed banks--no one has failed to recoup their deposits. So, is the
FDIC covering those accounts or are the banks that buy these failed banks covering those accounts
for customers?

[dixiegrrrrl]

15. The FDIC pays some of the costs/debts of failed banks.

For instance, this link explains what FDIC pays:

http://www.fdic.gov/bank/individual/failed/fsb-altus.html

The link is for the latest failed bank, but the procedure is the same.
If the new bank took over your account but the failed bank "ate" half of your desposited money,
FDIC makes up the difference.
The new bank takes over outstanding loan payments. And serivces your account after the switch over.
but the new bank does not take on any debts of the old bank.
Therefore, if FDIC keeps buying up the debts of more and more failed banks, the concern is FDIC funds could be used up, at the rate banks are failing.

[OnlinePoker]

14. Is The FDIC Broke And Covering It Up?

I've been following this for most of the year. FDIC will release 2nd quarter results near the end of the month (55 days after quarter ends). So far in the 3rd quarter(the month of July), total bank failures have an estimated cost to the FDIC of $3.155 Billion. They were getting close to $0 near the end of the 2nd quarter from my calculations, but those calculations didn't take into account insurance premiums received from member banks. These premiums were raised a lot in the 2nd quarter so we won't see what effect they'll have on the overall fund until 2nd quarter results are in.

http://www.fdic.gov/

If you open each failed bank listed and then the press release on the closing, it will tell you what the estimated cost to the fund is near the bottom of the release.