FDIC Bank Failure Report

This week, the Federal Deposit Insurance Corporation closed nine banks, a record number in the 2007 Depression: Bank USA, N.A., of Phoenix, AZ; California National Bank, of Los Angeles, CA; San Diego National Bank, of San Diego, CA; Pacific National Bank, of San Francisco, CA; Park National Bank, of Chicago, IL; Community Bank of Lemont, of Lemont, IL; North Houston Bank, of Houston, TX; Madisonville State Bank, of Madisonville, TX; and Citizens National Bank, of Teague, TX. The total assets of the closed banks were $19,400,000,000, and total deposits were approximately $15,400,000,000. The cost to the FDIC is estimated at $2,500,000,000.

According to our methodology, the recoverable value of the bank was $12,900,000,000, or only 66.49% of the declared asset value. This makes this week's closures distinctly above the cumulative recoverability since December 2007, which stands at 57.81% (up noticeably from last week's 57.46%).

Cumulative cost-to-FDIC was brought to $48,957,800,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $500,362,480,000, and total FDIC-insured deposits to $338,201,020,000. The recoverable value of all failed banks was only $289,243,220,000 (57.81% of the declared value).

***

A couple milestones to remember on this day, dear Reader: nine banks closed in one day, beating out the eight closed on February 7th of this year; and over a half-trillion dollars in bank assets passed through the FDIC's mangy paws! Let us pause in a moment of silence, to commemorate that $0.5 trillion, because this is probably the last time that quantity of dollars will seem like much money. The horror of that $0.5 trillion is that it was only worth about $0.2 trillion... ouch. Again, we think that's only going to get worse. If the U.S. banking system is anywhere near as insolvent as our methodology suggests it is, there are many, many more banks out there with thoroughly rotten balance sheets.

Speaking of rotten balance sheets, the acquiring bank for all nine failures was US Bank, of Minneapolis, MN. It looks like US Bank is on track to become what we'd like to call hyper-regional, because regional does not quite seem to cover a Midwest bank with 115 branches in California, and five in Texas. It seems to us that the animal spirits have possessed this bank, too, and they're 'positioning themselves for the recovery' with a vengeance. We're not sure what's in the water in US Bank's Minneapolis HQ, but it must be some impressively potent stuff. They see the same falling household incomes as we do, but our first though would not have been "that's great news, let's blow $13 billion!" We have to conclude that US Bank is putting their head on the block, because when - not if - the next market nosedive hits, they will probably find themselves extremely overreached. Then again, if they are reaching for 'too-big-to-fail' status, they are on exactly the right course.

Unfortunately, the FDIC did not provide a break-down of its cost-to-DIF for each individual bank (separate assets and deposits were provided, though). So, we will not be able to include this week's closures in our recoverability by State analysis, because the lack of detailed closure data would skew our analysis quite severely. As an aside, a cohort of ours contacted the FDIC, requesting the information, but the FDIC spokesperson said they didn't have the info on hand, and to file a Freedom of Information Act request for the same... Feel the love!

***

On the basis of the ratio of bank closures to population (i.e. simply the number of failures in the State, with no account of assets or deposits), the ten most afflicted States are listed here. Only those States which have two or more closures are considered.

1. Georgia
2. Nevada
3. Illinois
4. Minnesota (up from #6)
5. Utah (down from #4)
6. Kansas (down from #5)
7. Oregon
8. Missouri
9. Arizona (new to list)
10. Colorado (down from #9)

The recoverable value represents how much of declared assets are actually worth on the open market. The following are the ten States with the lowest recoverable value; only those States which have had two or more closures are considered in this analysis. [Note: this week's closures are not reflected in this data, so it remains unchanged from last week].

1. Florida (32.44%)
2. California (40.11%)
3. Colorado (42.76%)
4. Michigan (43.07%)
5. Nevada (50.13%)
6. Georgia (53.74%)
7. Utah (55.39%)
8. Arizona (56.08%)
9. Washington (56.18%)
10. North Carolina (56.7%)

***

So much for Florida; we have to rescind all our back-patting from last report, because Arizona has stolen the Sunshine State's lustre. We fully expect to see more of Florida, sometime in the future. Just don't ask us when, because we really don't know. This is, of course, influenced by the rather jittery movements of the FDIC's closures; they do not seem to be focusing on any one State in particular to try and clean up that State's banking system. If a concerted effort to get the U.S. banking system sound does develop, perhaps this problem will be alleviated. Additional data clarity could also come from the FDIC being forced to close banks more often than just weekly.

Arizona will probably end up being a pretty ugly case, in and of itself. In the long term we fully expect that State to be far worse off that Florida, but only by a question of degrees: Florida will be in ruins, but Arizona will be abandoned and in ruins. For the meanwhile, though, Florida's financial woes will probably come to the fore more so than any other State, because of the extremely-overvalued nature of the Florida banking system's assets.