FDIC Bank Failure Report - Extra Late Edition

On 22/01/10, the Federal Deposit Insurance Corporation closed five banks: Premier American Bank, Miami, FL; Bank of Leeton, Leeton, MO; Charter Bank, Santa Fe, NM; Evergreen Bank, Seattle, WA; and Columbia River Bank, The Dalles, OR. The assets of the closed banks were $3,159,500,000 and insured deposits were $2,637,600,000. The cost to the FDIC is estimated at $546,210,000.

According to our methodology, the recoverable value of the banks were only 66.19% of the declared asset value. This makes the recoverability of this week's closures distinctly above the cumulative recoverability since December of 2007, which stands at 57.69% (up slightly from last report's 57.64%).

Cumulative cost-to-FDIC so far in the Depression was brought to $57,767,960,000. These closures bring the total declared assets of FDIC-failed banks (since December of 2007) to $549,842,380,000, and total FDIC-insured deposits to $374,961,550,000. The recoverable value of all failed banks was only $317,193,590,000 (57.69% of the declared value).

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We noticed with a handful of these latest closures, that the FDIC has "acquire[d] a cash participant instrument," adding that "[t]his instrument serves as additional consideration for the transaction." At present we assume this means the FDIC is providing financing for the acquiring bank; in essence, the Government is giving store credit for the assets of dead banks. How this is a good idea, we really don't know, but we can only assume the regulatory geniuses at the FDIC have a firm grasp on things.

If indeed the FDIC is extending store credit to acquirers, we posit this means the bank catastrophe in the United States has entered a new phase of... well, catastrophe. Not only did the assets of Evergreen and Premier American start rotting when exposed to oxygen, they were so horrible the FDIC had to give financing to get rid of the muck. "Here, take the assets for awhile and give them a try in your books," the regulators must have told the acquirers; "we're so confident you'll love them, you don't even have to give us a down-payment." If those acquiring bank had had any self-respect, they would have run away screaming.

Once again we can't help but to think that the FDIC is setting itself up for a world of hurt. By extending store credit - if indeed that is what the "cash participant instrument" is - the FDIC is betting that a recovery will help strengthen the acquiring institutions sufficiently, that sucking up the full cost of the filth they bought on credit will not, in turn, cause them to croak. Instead, we're quite convinced by this move that a major bank failure is in the works, whether or not the FDIC is aware of it. If bank assets have gotten to the point where they have to be force-fed, then there's a big bank out there loaded to the gunwales with toxic sludge. The questions are: which bank, and when? Alas, dear Reader, we have no answers.

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On the basis of the ratio of bank closures to population (i.e. simply the number of failures in each State, with no weighting with 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
5. Utah
6. Kansas
7. Oregon (up from #9)
8. Missouri
9. Florida (down from #7)
10. Arizona

The recoverable value represents how much of declared assets are worth by our estimate 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.

1. Florida (39.38%, up from 38.89%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.06%)
5. Nevada (49.81%)
6. Ohio, up from #7 (50.84%)
7. Washington, down from #6 (54.11%, up from 50.62%)
8. Georgia (54.64%)
9. North Carolina (56.70%)
10. Maryland (56.90%)

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The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $546,210,000. The value now stands at $38,178,380,000.