FDIC’s problem bank list grows to 552, DIF now negative

November 24, 2009

I’m not good at taking vacations….

FDIC published its quarterly banking profile today. Here are the latest banking industry statistics at a glance. A few interesting takeaways I’d like to highlight. First, the problem bank list grew again. And it still understates total problem assets…both Citi and Bank of American should also be on this list.

The number of institutions on the FDIC’s “Problem List” rose to its highest level in 16 years. At the end of September, there were 552 insured institutions on the “Problem List,” up from 416 on June 30. This is the largest number of “problem” institutions since December 31, 1993, when there were 575 institutions on the list. Total assets of “problem” institutions increased during the quarter from $299.8 billion to $345.9 billion, the highest level since the end of 1993, when they totaled $346.2 billion. Fifty institutions failed during the third quarter, bringing the total number of failures in the first nine months of 2009 to 95.

Also, what will get lots of headlines today is that the Deposit Insurance Fund went negative as of September 30th. We already knew this to be true, and it’s not totally fair to report the negative balance without noting that FDIC does have cash. That said, the DIF is still in a very precarious position.

As projected in September, the FDIC’s Deposit Insurance Fund (DIF) balance – or the net worth of the fund – fell below zero for the first time since the third quarter of 1992. The fund balance of negative $8.2 billion as of September already reflects a $38.9 billion contingent loss reserve that has been set aside to cover estimated losses over the next year. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings over the next year. Combining the fund balance with this contingent loss reserve shows total DIF reserves with a positive balance of $30.7 billion.

Chairman Bair distinguished the DIF’s reserves from the FDIC’s cash resources, which stood at $23.3 billion of cash and marketable securities. To further bolster the DIF’s cash position, the FDIC Board approved a measure on November 12th to require insured institutions to prepay three years worth of deposit insurance premiums – about $45 billion – at the end of 2009. “This measure will provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010, but without accelerating the impact of assessments on the industry’s earnings and capital,” Chairman Bair said.

The DIF will continue to be negative after FDIC gets the additional $45 billion at the end of this year. That’s not a “special assessment,” it’s the next three years’ regular assessments being collected up front. The distinction is crucial. Because it’s a regular assessment, FDIC won’t count it as new reserves for the DIF. Instead it will be counted as deferred revenue on the DIF’s balance sheet.

Why is that important? Because unlike the $5.6 billion special assessment in Q2, banks don’t have to take a hit against their capital all at once for this assessment. They get to treat it as a prepaid expense.

More later….


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Lots of little banks finding their way onto the list. Not that you can’t deplete a fund with a thousand cuts, but I suspect that given status quo in the economy all the banks of any note (>$10B) that will be on this list already are.

Posted by Andrew | Report as abusive

My problem is with regions Bank, they charge a lot of over the limit fees. Just say a large amount will go threw but the small one will get charged fees. For each charge of one dollar to three dollars you will be charged thirty five dollar for each one. That goes on about five to ten times a month. This is a way to break working people. If you don’t check your account money will just walk away. So please look into this issue a lot of people is hurting!

Posted by kenyon love | Report as abusive

If the general public would take actions on knowing their account balances the banks would not charge them. There would be no overdrafts… The American public seems to point blame on the banks and not take the responsibility of maintaining their own accounts. When was it decided that Americans can just overdraw their accounts and expect the banks to pay the check for free? I think the general public needs to get a grip on their spending and actually keep a register again to make sure they have money in their accounts. You know just because you have checks it doesn’t mean you have money in your account. TAKE RESPONSIBILIY and quit blaming the banking system for your lack of knowing your account. The banks are not telling you to write bad checks….you are doing that on your own. If you don’t have the money don’t make the purchase. It’s high time people started owning up to their actions and quit blaming the banks. Tell me would you rather the banks send back your rent/mortgage payment? That way you would have the collectors calling you stating you owe money, then that would in turn hit your credit report and lower your score so when you went to purchase a vehicle or applied for credit you would be denied.
So you tell me what the banks should do? Just pay your mistake and not charge you for it? It sounds like you want everything for free…The reason banks charge is because people yes that’s right live people (that know how to manage an account) have to touch the check or make a decision about whether or not to pay it. If you want to you can go to your bank and ask them not to pay any checks that would create an overdraft fee. The banks are willing to just return your bad check and have the business owner turn it over to the prosecuting attorney to track you down.

Posted by Steve | Report as abusive

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