Bank Failure Friday + DIF details

August 21, 2009

Another big one bites the dust.  Guaranty is the 81st failure of the year.  Plus two more in Georgia.

Below this evening’s failure news I’ve got more detail about the Deposit Insurance Fund, including an interesting tidbit about why FDIC collected so little in premiums from 1996-2006.


  • Failed Bank: eBank, Atlanta GA
  • Acquirer: Stearns Bank NA, St. Cloud MN
  • Vitals: As of 7/10/09 assets of $143 million, deposits of $130 million
  • DIF Damage: $63 million


  • Failed Bank: First Coweta, Newnan GA
  • Acquirer: United Bank, Zebulon GA
  • Vitals: As of 7/31/09 assets of $167 million, deposits of $155 million
  • DIF Damage: $48 million


  • Failed Bank: CapitalSouth Bank, Birmingham AL
  • Acquirer: IBERIABANK, Lafayette LA
  • Vitals: As of 6/30/09 assets of $617 million, deposits of $546 million
  • DIF Damage: $151 million


  • Failed Bank: Guaranty Bank, Austin TX
  • Acquirer: BBVA Compass, Birmingham AL
  • Vitals: As of 6/30/09 assets of $13 billion, deposits of $12 billion
  • DIF Damage: $3 billion (!)

There was a confusing article in Bloomberg yesterday, which suggested FDIC is considering a new $5.6 billion fee on banks to replenish the DIF.

Just so folks are clear, that $5.6 billion was already assessed.  Banks accrued the expense on June 30th and will pay the cash into the DIF on September 30th.  That was a special assessment of 5¢ for every $100 of deposits.

We will be getting an update on the DIF’s funded status next Thursday, when FDIC publishes its Quarterly Banking Profile.

But here’s what we know about the DIF’s status right now:

  • DIF balance at 3/31 = $13.0 billion
  • Contingent Loss Reserve at 3/31= $28.5 billion (i.e. reserves set aside for current and future losses)
  • Q2 assessments = $8.9 billion ($5.6 billion one-time assessment + $3.3 billion scheduled quarterly assessment)

That’s $50.4 billion of firepower.  Since March 31st, we’ve had new bank failures that will cost an estimated $19.2 billion.

If FDIC appears to have a decent amount of reserves, will they have to draw on their credit line at Treasury?  It’s possible.

The issue is the liquidity of their assets.  A huge chunk of their balance sheet is made up of assets received from failed banks.  REO, toxic loans, etc.  That’s not cash they can use to finance bank seizures and sales.  If they run out of cash, they may have to borrow from Tim Geithner.

I’m working on getting more information about the composition of the DIF, in particular how much cash they have on hand.  I’ll follow up when I know more.

And now for tonight’s tidbit: I have been critical of FDIC in the past for not collecting deposit insurance premiums from most banks between 1996 and 2006. I wasn’t aware that FDIC was prevented by law from doing so during that period because the DIF was above 1.25% of insured deposits.

I was wrong to be critical of FDIC on this point.  It was Congress’ fault, not theirs.

They changed the law back in 2006, by the way, right before Sheila Bair was installed as Chairwoman.  For those interested, it’s 12 USC Section 1817 (b).


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As you’ve noted, were the FDIC to apply the same standards it applies to the ‘little guys’ to the behemoths, i.e. mark to market, withdrawal of the FEDS alphabet soup of loans and guarantees there isn’t much doubt that its DIF would be gone and it wouldn’t take a C or BAC to cause it either.

I’m not advocating the FDIC pull rank and shut down any of the gang of 19, hell I’ve got money in them and I don’t know where to put it but wish I did, but the fact of the matter is SunTrust, Wells Fargo etc are in no fundamentally different position than any of the Friday night casualty list save their TBTF status.

Posted by sangellone | Report as abusive

Let me add. I’m scared. I feel I am banking with Bernie Madoff now. I’ve worked long and hard to get where I am and I fear it could all be lost. Social Security? Well, I had hoped it would be there but I guess it will soon be ‘means tested’. Medicare? I know people who have to go to ‘government clinics’. They are full of people who are not ‘Americans’.

Seriously, the rug is about to be pulled out from under us. My house, paid for, will not be worth anything like it once was which is fair enough but if I can’t even sell it to move to a smaller one what then?

When I hear Bernanke, talk about the recovery I feel sick to my stomach because that very gut tells me it isn’t a matter of restoring ‘consumer confidence’. Too much water has gone over the dam and we are in a new
place that isn’t 1933 but isn’t 2007 either.

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Did I not read the White House will cut $25 billion out of the budget by removing the FDIC reserve?

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Posted by Guaranty Bank shut down by regulators – Politics & Current Affairs Forum | Report as abusive

Thanks for the informative articles, years from now our grandchildren will study this period of financial rape and wonder why there were not more reporters like you!

Posted by kirk | Report as abusive

Eighty-one bank failures in 2009 alone, with another 300
predicted by the end of 2010. But don’t worry. This is
just another ‘mild’ recession. So what if the FDIC runs
out of money; just borrow some more from the Fed.
Besides the Fed is in the capable hands of Mr. Bernanke
and Mr. Geitner–nothing to be concerned about. Is there?

Posted by Christopher Popham Smith, Boston, Ma. | Report as abusive