La Jolla Bank was quite a nasty one, with the assets only apparently worth around 53.27 cents on the dollar. Quite a painful affair, as that is after the bondholders and shareholders have already been wiped out financially. Considering that the FDIC had to kick in another $1.9 billion or so to make the failed bank whole is very telling as well: the U.S. banking system is not in pretty shape.
In fact, it's in horrible shape. Over the two-plus years since the beginning of the ongoing Depression, the recoverability of banks is only 57 cents on the dollar. This means that, if the entire banking system were to be immediately liquidated, in some Keynesian nightmare come alive, the market value of all assets would see a 40% haircut or so - and that is a best-case. Of course, such a liquidation is not going to happen all at one, but it is certainly happening piecemeal, as the FDIC steadily dismantles the small-to-medium sized banks in the U.S. Such as the other three banks which the FDIC closed this week, representing only a bit over $586 million all together. We will bet dollars to doughnuts (we'll even make the doughnuts, mind you) that there are quite a few more La Jolla Banks out there, than the FDIC's closure patterns might suggest.
Be that as it may, the stress information given by our analysis of the States' shares of the total cost to the FDIC for bank closures is quite enlightening. Overall, those States which have suffered bank closures are actually not all that badly off, relative to population. The six States listed in the report (Alabama, Georgia, Nevada, California, Florida, Illinois) are really the only States which are even remotely out of line with statistical expectations - i.e. how close their share of the total cost is, to their share of the total U.S. population.
The rest, interestingly enough, are lower - at times, much lower - than the State's population would suggest. Now, that of course could be because some State banking systems are healthier than others, such as North Dakota's. However, that would suggest the United States is not in, overall, terrible shape. We would object very strongly to such an intimation, because all economic indicators we'd care to consult are showing exactly the opposite.
Unemployment has increased year-over-year in all 50 States and the District of Columbia, for example. According to the Federal Reserve, assets of nonfarm nonfinancial corporations have shrunk year-over-year by 7% in the third quarter of 2009; household and nonprofit assets fell by 5.3%; if we pretend that private entrepreneurs are meaningful anymore, nonfarm noncorporate business assets collapsed by 13.8%. Is the picture grim enough, yet, dear Reader? We don't feel we need to continue to make the point: banks are reliant upon the health of the rest of the so-called economy. That economy is taking a face-plant, ergo banks are not in good straits.
Bank closures, to summarise, should not only be accelerating, but they will be getting worse. Since that factor is not apparent in the short-term of our present data set, we suspect that the FDIC has a modus operandi which has nothing to do with safe-guarding the health of the banking system, nor protecting depositors.
Rather, it seems more plausible that the FDIC is carrying on some sort of psychological management of the U.S. public. This assertion arises from our observation that the closures which the FDIC perform appear to be planned around some calculation of weekly assets, and perhaps total estimated cost to the FDIC. We can't necessarily prove this, of course, but it is our opinion on the matter.
The end of such a psychological management, at least from the perspective of both the banking system, and the Federal Government, is to keep the Citizenry from panicking. The last thing which both the Government and banks want right now is a full-scale bank run, as that would be a very difficult thing to have in concert with the 'ongoing recovery' incantations of the press.
* * *
This week's project for us will be to integrate pre-Depression (i.e. before December of 2007) bank closure data into our analysis. Our intention is to see the changes in recoverability over the early 2000's, leading up to the Depression.
Saturday, February 20, 2010
FDIC Bank Failure Report
On 19/02/10, the Federal Deposit Insurance Corporation closed four banks: La Jolla Bank, FSB, La Jolla, CA; George Washington Savings Bank, Orland Park, IL; The La Costa National Bank, La Costa, CA; and Marco Community Bank, Marco Island, FL. The assets of the closed banks were $4,186,300,000 and insured deposits were $3,363,400,000. The cost to the FDIC is estimated at $1,068,740,000. The closure data is available here, at the FDIC website.
According to our methodology, the recoverable value of the banks was only 54.81% of the declared asset value. This makes the recoverability of this week's closures well below the cumulative recoverability since December of 2007, which stands at 57.64% (down from 57.66%). This means that the failed banks' assets were worth approximately 54.81¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.64¢ on the dollar.
Cumulative cost to the FDIC to close all 185 banks (since December of 2007) was brought to $60,715,560,000. These closures bring the total declared assets of failed institutions to $559,578,080,000, and total FDIC-insured deposits to $383,237,850,000. The recoverable value of all failed banks was only $322,522,290,000 (57.66% of the declared value).
* * *
Due to the increasing depth of data we have on hand, we have retired the bank closures to population analysis as a measure of stress. Instead, we will use analysis based on the cost of closures to the FDIC by State, in order to demonstrate which States are likely the most economically stressed in the United States. Only those States which have two or more bank closures are considered. Presently only six States are over our 'stressed' threshold.
1. Alabama
2. Georgia
3. Nevada
4. California
5. Florida
6. Illinois
* * *
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 (39.95%, up from 39.81%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.47%, up from 45.13%)
5. Nevada (49.81%)
6. Ohio (50.84%)
7. Washington (55.25%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Maryland (56.90%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $1,068,740,000. The value now stands at $35,230,780,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click here to read the FDIC press release about the assessment). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
According to our methodology, the recoverable value of the banks was only 54.81% of the declared asset value. This makes the recoverability of this week's closures well below the cumulative recoverability since December of 2007, which stands at 57.64% (down from 57.66%). This means that the failed banks' assets were worth approximately 54.81¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.64¢ on the dollar.
Cumulative cost to the FDIC to close all 185 banks (since December of 2007) was brought to $60,715,560,000. These closures bring the total declared assets of failed institutions to $559,578,080,000, and total FDIC-insured deposits to $383,237,850,000. The recoverable value of all failed banks was only $322,522,290,000 (57.66% of the declared value).
* * *
Due to the increasing depth of data we have on hand, we have retired the bank closures to population analysis as a measure of stress. Instead, we will use analysis based on the cost of closures to the FDIC by State, in order to demonstrate which States are likely the most economically stressed in the United States. Only those States which have two or more bank closures are considered. Presently only six States are over our 'stressed' threshold.
1. Alabama
2. Georgia
3. Nevada
4. California
5. Florida
6. Illinois
* * *
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 (39.95%, up from 39.81%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.47%, up from 45.13%)
5. Nevada (49.81%)
6. Ohio (50.84%)
7. Washington (55.25%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Maryland (56.90%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $1,068,740,000. The value now stands at $35,230,780,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click here to read the FDIC press release about the assessment). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
Saturday, February 13, 2010
Commentary on the FDIC Bank Failure Report (05/02/10)
Because the basic FDIC Report is getting quite technical, we've decided to separate out our commentary from the body of data. Both will continue to be published, and when something is particularly shocking, we'll make a point of it, both in the commentary, and the Report proper.
* * *
The bank closed last week was both small, and relatively well-invested, considering how attractive a 72% recoverability is, compared to the overall recoverability of 52%. However, this still is terrible news: a bank should not be so malinvested, that its assets take such a spectacular hit. And that is presumably after the stockholders and bondholders have already been wiped out, as well. It is imminently possible that the closure was far worse than what the FDIC's numbers, after our crunching of them, would suggest.
We would posit that a recoverable value around 75% is a very hopeful case, and it would be unwise for an individual with funds in an American bank to expect such a glowing number. If the FDIC should be rendered impotent, perhaps through utter collapse of the Deposit Insurance Fund and the Treasury credit line, this means that the best a depositor could hope for, all other things being equal, is the recovery of 75¢ on the dollar. A worst-case scenario, such as IndyMac, would result only in 22¢ on the dollar; average is hovering presently around 56¢ on the dollar.
Needless to say, if it weren't for the FDIC making depositors whole, there would be massive destruction of savings and deployable real capital throughout the United States. This makes the FDIC indespensible for maintaining public faith in the U.S. banking system... faith that, we think, is already too much.
On a technical front, we believe we now have sufficient depth of data to begin comparing assets of closed banks to the population of their State of domicile. This will allow us to retire the comparision of raw number of bank closures to State population. We expect to have this ready for next week's closures, assuming that the FDIC can dig itself out of the snowbanks.
* * *
The bank closed last week was both small, and relatively well-invested, considering how attractive a 72% recoverability is, compared to the overall recoverability of 52%. However, this still is terrible news: a bank should not be so malinvested, that its assets take such a spectacular hit. And that is presumably after the stockholders and bondholders have already been wiped out, as well. It is imminently possible that the closure was far worse than what the FDIC's numbers, after our crunching of them, would suggest.
We would posit that a recoverable value around 75% is a very hopeful case, and it would be unwise for an individual with funds in an American bank to expect such a glowing number. If the FDIC should be rendered impotent, perhaps through utter collapse of the Deposit Insurance Fund and the Treasury credit line, this means that the best a depositor could hope for, all other things being equal, is the recovery of 75¢ on the dollar. A worst-case scenario, such as IndyMac, would result only in 22¢ on the dollar; average is hovering presently around 56¢ on the dollar.
Needless to say, if it weren't for the FDIC making depositors whole, there would be massive destruction of savings and deployable real capital throughout the United States. This makes the FDIC indespensible for maintaining public faith in the U.S. banking system... faith that, we think, is already too much.
On a technical front, we believe we now have sufficient depth of data to begin comparing assets of closed banks to the population of their State of domicile. This will allow us to retire the comparision of raw number of bank closures to State population. We expect to have this ready for next week's closures, assuming that the FDIC can dig itself out of the snowbanks.
FDIC Bank Failure Report
Well, what can we say. We forgot to do last week's closure. There were no closures by the FDIC this week, presumably caused by the massive snowstorm which has shut down most of the East Coast. However, we're confident the banking system will limp along just fine without the fine folks at the FDIC.
* * *
On 05/02/10, the Federal Deposit Insurance Corporation closed one bank: 1st American State Bank of Minnesota, Hancock, MN. The assets of the closed bank were $18,200,000 and insured deposits were $16,300,000. The cost to the FDIC is estimated at $3,100,000. The closure data is available here, at the FDIC website.
According to our methodology, the recoverable value of the bank was only 72.53% of the declared asset value. This makes the recoverability of this week's closures strikingly above the cumulative recoverability since December of 2007, which stands at 57.66% (unchanged from last report). This means that the failed bank's assets were worth approximately 72.53¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.66¢ on the dollar.
Cumulative cost-to-FDIC so far in the Depression was brought to $59,646,820,000. These closures bring the total declared assets of all 181 FDIC-failed banks (since December of 2007) to $555,391,780,000, and total FDIC-insured deposits to $379,874,450,000. The recoverable value of all failed banks was only $320,227,630,000 (57.66% of the declared value).
* * *
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. Minnesota (up from #4)
4. Illinois (down from #3)
5. Utah
6. Kansas
7. Oregon
8. Missouri
9. Florida
10. Washington
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 (39.81%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.13%)
5. Nevada (49.81%)
6. Ohio (50.84%)
7. Washington (55.25%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Maryland (56.90%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $3,100,000. The value now stands at $36,299,520,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click on the Meter's link to read the FDIC press release). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
* * *
On 05/02/10, the Federal Deposit Insurance Corporation closed one bank: 1st American State Bank of Minnesota, Hancock, MN. The assets of the closed bank were $18,200,000 and insured deposits were $16,300,000. The cost to the FDIC is estimated at $3,100,000. The closure data is available here, at the FDIC website.
According to our methodology, the recoverable value of the bank was only 72.53% of the declared asset value. This makes the recoverability of this week's closures strikingly above the cumulative recoverability since December of 2007, which stands at 57.66% (unchanged from last report). This means that the failed bank's assets were worth approximately 72.53¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.66¢ on the dollar.
Cumulative cost-to-FDIC so far in the Depression was brought to $59,646,820,000. These closures bring the total declared assets of all 181 FDIC-failed banks (since December of 2007) to $555,391,780,000, and total FDIC-insured deposits to $379,874,450,000. The recoverable value of all failed banks was only $320,227,630,000 (57.66% of the declared value).
* * *
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. Minnesota (up from #4)
4. Illinois (down from #3)
5. Utah
6. Kansas
7. Oregon
8. Missouri
9. Florida
10. Washington
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 (39.81%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.13%)
5. Nevada (49.81%)
6. Ohio (50.84%)
7. Washington (55.25%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Maryland (56.90%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $3,100,000. The value now stands at $36,299,520,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click on the Meter's link to read the FDIC press release). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
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