FDIC Bank Failure Report

This week, the Federal Deposit Insurance Corporation closed only one bank: Georgian Bank of Atlanta, Georgia. Total declared asset value of the closed bank was approximately $2,000,000,000, and total deposits were approximately $2,000,000,000. The cost to the FDIC is estimated at $892,000,000. According to our methodology, the recoverable value of Georgian Bank was $1,108,000,000, or only 55.40% of the declared asset value.

Cumulative cost-to-FDIC was brought to $45,704,800,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $478,389,780,000, and total FDIC-insured deposits to $320,552,620,000. This includes the assets and deposits of Washington Mutual, which can now be included in data analysis due to our new methodology. The recoverable value of all failed banks was only $274,847,820,000, or 57.45% of the declared value.

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This week's closure was below the national average of failed banks, but it is far from attractive. Such a low recoverable value is a sign of some serious problems within the U.S. banking system; problems which have not, by any stretch of the imagination, been worked out or 'TARPed' from existence.

Since there is a distinct likelihood that a good chunk of the banking system is overvalued to about this degree (e.g. 55% recoverability or so), we can only assume that the FDIC is purposefully dragging its feet on closing those banks which are in the worst shape. This would make sense, especially considering if approximately half of the entire banking system's assets are toxic waste!

Given that scenario, though, a serious problem arises: it means that the FDIC's exhaulted insurance is nothing but a Ponzi scheme. If indeed the banking system is that insolvent, or even approxmiately that insolvent, then the money paid out on FDIC closures is simply the money which has been recently paid in by banks for the deposit insurance. Perhaps the FDIC chooses which bank to close, not based on how insolvent or zombiod it is, but rather how much money is on hand to cover deposits...

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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:

1. Georgia
2. Nevada
3. Illinois
4. Utah
5. Kansas
6. Oregon
7. Minnesota
8. Missouri
9. Washington
10. Florida

We are replacing the losses-to-assets analysis by State, with a recoverable value analysis by State. However, we are still retooling our data, but we expect that we will be ready to provide this analysis with next week's closures.

Changes to the FDIC Bank Failure Report

In our last FDIC Bank Failure Report, we took a look at Corus Bank's assets and the consequent FDIC losses, and smelled a rat. Corus' $7 billion in assets had cost the FDIC $1.7 billion... but the FDIC sold off $3 billion of those assets to an unwitting sucker in the form of MB Financial Bank. So, the $1.7 billion cost-to-DIF was actually on the $4 billion in ex-Corus assets which the FDIC kept, giving Corus Bank a losses-to-assets ratio of 42.50%. Bad, quite bad, and made worse so in our eyes, as Corus' raw losses-to-assets originally came up at a paltry 24.29%.

But then, we started thinking. How could it be that Corus' $7 billion in assets didn't cover the $7 billion in FDIC-insured deposits? Why was it that the FDIC had to spend $1.7 billion on a bank which should have been able to be liquidated and be able to pay out?

The answer is obvious, of course: Corus' reported assets were overvalued. But just how overvalued were they? It's around this point when we realised we had been looking at the answer for months, now, without it having sunk into our thick skull: the assets were overvalued by the amount of money the FDIC admitted it had to spend on the failed bank!

So... forget everything about losses-to-assets, we've got something new to look at: recoverable value. Simply put, what percentage of declared value the bank's assets are really worth when they're put up on the FDIC's auction block.

As an example, we'll take Corus. The $7 billion in declared assets were supposed to cover the $7 billion in FDIC- insured deposits. They didn't, to the tune of $1.7 billion (i.e. cost-to-Deposit Insurance Fund). This means that the assets on Corus' books were reported overvalued by $1.7 billion. Doing the math, Corus' assets were only worth $5.3 billion or so.

And lo, the recoverable value appears: the declared value of Corus' assets was only 75.71% recoverable.

This is horrible, with a capital H, O, R, R, I, B, L, and E! To see a major bank have assets whose market value is only 75.71% of their declared value is unbelievably bad. Why Corus wasn't shut down months ago, we have a few dark suspicions – a topic for a later post. Suffice it to say, Corus Bank was insolvent, out of cash, massively overvalued, and otherwise scum-of-the-earth as far as a bank goes.

Did we forget to mention it gets much, much worse? Let's hop onto a time machine, and look at some bank failures from the past. First stop, Washington Mutual, the FDIC's whack-job for our friends over at JPMorgan Chase. The two 'divisions' of WaMu had combined assets of $307 billion, and combined deposits of $188 billion. The FDIC, at the time of WaMu's assassination – or closure, if you prefer – made a great fanfare about how the failure was not going to cost the DIF a single cent.

That all might be true, but we read in the FDIC's press release that JPMorgan Chase gave the FDIC $1.9 billion. For what, we wonder? Perhaps to cover costs to the DIF, so that the FDIC could have a media coup? Hmmm... we suspect that it is indeed just that: the true cost of the failure, conveniently hidden by JPMorgan Chase's willing assistance; so, we count that $1.9 billion as the actual cost-to-DIF.

Using our new methodology – subtract cost-to-DIF from total FDIC-insured deposits – we find that WaMu's assets were only worth about $186.1 billion; recoverable value was only 60.62%. Yes, dear Reader, that is worse than Corus, and much bigger too! However, a happy moment can be found in WaMu: the FDIC didn't just gift several hundred billion dollars to JPMorgan Chase, it actually gave it a bag of bad assets and rotting derivatives. You know, the usual fare at JPMorgan.

Anyway, one more failure to visit, this one even deeper in the past: IndyMac F.S.B. It had assets at a declared value of $32.01 billion, and total deposits of $18.06 billion. From the day that the FDIC closed the bank, until the FDIC sold off the successor zombie-bank, the total cost-to-DIF was a lovely $10.7 billion – making IndyMac the most costly bank failure in raw dollars this far in the Depression, as an aside.

But now, the scary part... Using our new methodology – subtract cost-to-DIF from total FDIC-insured deposits – we find that IndyMac's assets were only worth about $7.36 billion.

Pause a moment, dear Reader, and ponder that number. That's a bad number. Compare to the dlecared asset value of $32.01 billion. IndyMac's recoverable value, after all was said and done, was a chillingly slender 22.99% of declared asset value. This makes IndyMac the biggest loser so far in the Depression; a bottomless pit into which the FDIC shoveled money.

So ends today's time-travelling. We hope it was enlightening for you, as it was quite eye-opening for us. A final bit of bad news: using our new methodology on the total declared assets of all banks closed since December 2007, the recoverable value of all 119 of these banks was 57.46%. Although the comparison is not exact, one can suggest that it is possible that the entire United States' banking system will only be about 57% recoverable, or so. We must be honest here: we fully expect that this will get worse in the future. Much worse.

FDIC Bank Failure Report

Last week, the Federal Deposit Insurance Corporation closed three banks: Corus Bank (Chicago, Illinois); Brickwell Community Bank (Woodbury, Minnesota); and Venture Bank (Lacy, Washington). Total assets of the closed banks were $8,042,000,000. The cost to the FDIC is estimated at $2,020,000,000. The percentage of FDIC loss out of total assets is 25.12%.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $471,296,780,000, with cost-to-FDIC brought to $38,783,800,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 8.23%, up from 7.87% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $164,296,780,000, and total cost is $38,783,800,000. The percentage of FDIC losses to total assets now stands at 23.61% up from 23.53% as of last report.

The situation with Corus Bank requires additional examination. The acquiring institution, MB Financial Bank, agreed to take ownership of $3 billion (out of $7 billion) of ex-Corus assets, leaving $4 billion in the capable hands of the FDIC. The raw losses-to-assets ration is 24.29%; however, taking MB Financial's actions into account, and the extimated cost-to-DIF of $1.7 billion, the actual losses-to-assets stands at an whopping 42.50%. Because of the severity of this different, we're going to be looking closer at past closures, as it is entirely possible that closures have been altogether worse than we previously thought.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Nevada
2. Georgia
3. Illinois
4. Utah
5. Kansas
6. Minnesota
7. Oregon
8. Missouri
9. Washington
10. Florida

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Pennsylvania - 50.75%
2. Utah - 40.32%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 37.62%
7. Iowa - 36.68%
8. West Virginia - 36.52%
9. Nevada - 35.56%
10. Arizona - 34.45%

FDIC Bank Failure Report - Extra-Late Edition

Last week, the Federal Deposit Insurance Corporation closed four banks: ebank (Atlanta, Georgia); First Coweta (Newnan, Georgia); CapitalSouth Bank (Birmingham, Alabama); and Guaranty Bank (Austin, Texas). Total assets of the closed banks were $13,927,000,000. The cost to the FDIC is estimated at $3,262,000,000. The percentage of FDIC loss out of total assets is 23.42%.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $460,207,180,000, with cost-to-FDIC brought to $35,916,500,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 7.80%, up from 7.32% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $153,207,180,000, and total cost is $35,916,500,000. The percentage of FDIC losses to total assets now stands at 23.44% down from 23.45% as of last report.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Nevada
2. Georgia
3. Utah
4. Illinois
5. Kansas
6. Oregon
7. Minnesota
8. Missouri
9. Florida
10. Colorado

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Pennsylvania - 50.75%
2. Utah - 40.32%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 37.62%
7. West Virginia - 36.52%
8. Nevada - 35.56%
9. Maryland - 35.00%
10. South Dakota - 33.90%

FDIC Bank Failure Report - Extra-Late Edition

This week, the Federal Deposit Insurance Corporation closed five banks: First State Bank of Altus (Altus, Oklahoma); Integrity Bank (Jupiter, FL); Peoples Community Bank (West Chester, OH); First Bankamericano (Elizabeth, NJ); and Mutual Bank (Harvey, IL). Total assets of the closed banks were $2,694,200,000. The cost to the FDIC is estimated at $911,700,000. The percentage of FDIC loss out of total assets is 33.84%.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $418,695,280,000, with cost-to-FDIC brought to $28,794,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.88%, up from 6.70% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $111,695,280,000, and total cost is $28,794,700,000. The percentage of FDIC losses to total assets now stands at 25.78% up from 25.58% as of last report.

The first closure of an Ohio bank in the Depression is a good sign for the accuracy of our Economic Stress Report. In the last edition, Ohio ranked as the second-most stressed State, according to our analysis. Indeed, three of the five States with this week's failures are on our watch list. We expect that our Stress Report will more accurately predict coming bank failures (an indicator of economic stress) in future months.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Georgia
2. Nevada
3. Utah
4. Illinois
5. Kansas
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. California

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Utah - 40.32%
2. Idaho - 39.11%
3. Michigan - 39.03%
4. Wyoming - 38.57%
5. Florida - 38.12%
6. West Virginia - 36.52%
7. Maryland - 35.00%
8. South Dakota - 33.90%
9. Minnesota - 33.01%
10. Washington - 32.39%

FDIC Bank Failure Report - Extra-Late Edition

This week, the Federal Deposit Insurance Corporation closed seven banks: Waterford Village Bank (Clarence, NY); Security Bank of Bibb County (Macon, GA); Security Bank of Houston County (Perry, GA); Security Bank of Jones County (Gray, GA); Security Bank of Gwinnett County (Suwanee, GA); Security Bank of North Metro (Woodstock, GA); and Security Bank of Fulton (Alpharetta, GA). Total assets of the closed banks were $2,852,400,000. The cost to the FDIC is estimated at $812,600,000. The percentage of FDIC loss out of total assets is 28.49%.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $416,001,080,000, with cost-to-FDIC brought to $27,883,000,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.70%, up from 6.55% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $109,001,080,000, and total cost is $27,883,000,000. The percentage of FDIC losses to total assets now stands at 25.58% up from 25.50% as of last report.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Georgia
2. Nevada
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. California

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. South Dakota - 33.90%
10. Minnesota - 33.01%

FDIC Bank Failure Report

This week, the Federal Deposit Insurance Corporation closed three banks: First Piedmont Bank (Winder, GA); BankFirst (Sioux Falls, SD); and Temecula Valley Bank (Temecula, CA). Total assets of the closed banks were $1,890,000,000. The cost to the FDIC is estimated at $511,000,000. The percentage of FDIC loss out of total assets is 27.04%.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $413,148,680,000, with cost-to-FDIC brought to $27,070,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.55%, up from 6.46% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $106,148,680,000, and total cost is $26,679,400,000. The percentage of FDIC losses to total assets now stands at 25.50% up from 25.47% as of last report.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. California

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. South Dakota - 33.90%
10. Minnesota - 33.01%

FDIC Bank Failure Report

This week, the Federal Deposit Insurance Corporation closed one, small bank: Bank of Wyoming (Thermopolis, WY). Total assets of the closed bank was $70,000,000. The cost to the FDIC is estimated at $27,000,000. The percentage of FDIC loss out of total assets is 38.57%.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $411,258,680,000, with cost-to-FDIC brought to $26,559,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.46%, up from 6.45% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $104,258,680,000, and total cost is $26,559,400,000. The percentage of FDIC losses to total assets now stands at 25.47%, unchanged from last report.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. Washington

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. Minnesota - 33.01%
10. Georgia - 32.42%

FDIC Bank Fallure Report, Holiday Edition

This week the Federal Deposit Insurance Corporation closed seven banks: Millennium State Bank of Texas (Dallas, TX); Founders Bank (Worth, IL); First National Bank of Danville (Danville, IL); Elizabeth State Bank (Elizabeth, IL); Rock River Bank (Oregon, IL); First State Bank of Winchester (Winchester, IL); and John Warner Bank (Clinton, IL). Total assets of the seven closed banks were $1,485,000,000. The cost to the FDIC is estimated at $314,300,000. The percentage of FDIC loss out of total assets for the seven is 21.16%.

These closures bring the total assets of FDIC-failed banks (since December of 2007) to $411,188,680,000, with cost-to-FDIC brought to $26,532,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.45%, up from 6.40% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $104,188,680,000, and total cost is $26,532,400,000. The percentage of FDIC losses to total assets now stands at 25.47%, down from 25.53% as of last report.

According to the FDIC, "The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution. The failure of these banks resulted primarily from losses related to the banks' investment in collateralized debt obligations and other loan losses." This post-mortem commentary from the FDIC on the nature of the banks' investments is unusual. We suspect it may be a veiled warning to State and Federal banking regulators to watch for similar situations.

On the basis of the ratio of bank closures to population, and the ten most afflicted states are:

1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. Washington

On the basis of the total losses-to-assets ratio in each state, the worst are as follows:

1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Florida - 38.11%
6. West Virginia - 36.52%
7. Maryland - 35.00%
8. Minnesota - 33.01%
9. Georgia - 32.42%
10. Washington - 32.39%

FDIC Bank Failure Report

This week the Federal Deposit Insurance Corporation closed three banks: First National Bank of Anthony (Anthony, KS); Cooperative Bank (Wilmington, NC); and Southern Community Bank (Fayetteville, GA). Total assets of the three closed banks were $1,503,900,000. The cost to the FDIC is estimated at $363,200,000. The percentage of FDIC loss out of total assets for the three is 24.15%.

These closures bring the total assets of FDIC-failed banks (since December of 2007) to $408,659,080,000, with cost-to-FDIC brought to $25,953,900,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.35%, up from 6.29% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $101,659,080,000, and total cost is $25,953,900,000. The percentage of FDIC losses to total assets now stands at 25.53%, down from 25.55% as of last report.

Although the without-WaMu losses-to-assets took a slight dip this week, the trend in FDIC losses has effectively levelled out... at least for the time being. We sincerely doubt that the problems with the United States' banking system have resolved themselves overnight, so we expect to see a resuming of increasingly costly bank closures.

FDIC Bank Failure Report

This week the Federal Deposit Insurance Corporation closed three banks: one in Florida, and two in Illinois. Total assets of the closed banks were $13,774,000,000. The cost to the FDIC is estimated at 5,179,000,000. The percentage of FDIC loss out of total assets is 37.6%.

These closures bring the total assets of FDIC-failed banks (since December of 2007) to $406,504,118,000, with cost-to-FDIC brought to $25,401,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.25%, up from 5.17% as of last report.

Upon elimination of WaMu's assets from the analysis, total assets are $99,504,180,000, and total cost is $25,401,700,000. The percentage of FDIC losses to total assets now stands at 25.53%, up from 23.56% as of last week.

The trend of ever-more-costly bank failures has been reinforced by this week's closures. There is no sign of 'bottoming' or recovery in the banking crisis.

FDIC Bank Failure Report (10/05/2009)

As of the evening of May 9th, the Federal Deposit Insurance Corporation has closed only one bank this weekend. From the FDIC's press release:

Westsound Bank, Bremerton, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. As of March 31, 2009, Westsound Bank had total assets of $334.6 million... the FDIC estimates the cost to its Deposit Insurance Fund will be $108 million.

Westsound Bank required the FDIC to cover losses equal to 32.28% of the bank's total assets.

This closure brings the total assets of FDIC-failed banks (since December of 2007) to $393,167,180,000, with cost-to-FDIC brought to $20,328,700,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of bad assets to total assets presently stands at 5.17%, up from 5.15% as of last week.

Upon elimination of WaMu's assets from the analysis, total assets are $86,167,180,000, and total cost is $20,328,700,000. The percentage of bad assets to total assets now stands at 23.59%, up from 23.56% as of last week.

The trend of ever-more-costly bank closures seems to be continuing, though this week's closure is too small to effect the data one way or the other.

Bank Losses Growing

This weekend the FDIC took three more U.S. Banks into receivership. The losses absorbed by the FDIC were rather striking. Out of total assets of the three banks of $4,444,500,000 there was a total $1,437,500,000 in expected cost to the FDIC. Added to the FDIC losses are the losses born by stockholders and uninsured creditors of the banks. The total losses are thus well over 1/3 of the value of the assets.

The loss level of FDIC losses to total assets from all 57 U.S. bank failures since the Depression started stands at 5.16%, up from 4.84% last week. Excluding the costless WaMu operation, the level stands at 23.56%, up from 23.08%.

It is impossible to know how much worse the failed banks and not-yet-failed banks are than the survivors. Or indeed, what percent of banks will fail. Nevertheless, we will make a few 'back of the envelope' calculations.

Suppose 10% of the banking industry is slated for liquidation. This would constitute about one and a half trillion dollars of assets. If the FDIC can contain losses to the 5% level that would be 75 billion dollars - a lot of money, but manageable given its substantial credit lines from the U.S. Treasury. If losses are closer to the 25% level, that would be 375 billion, or a good chunk of those credit lines. Substantially more than 25% losses, or more than 10% of the industry doomed means the FDIC will need larger credit lines.

The subject of FDIC credit lines raises an interesting question. How is that money to be paid back? Formally, that means raising the (already high) premiums the FDIC charges banks for deposit insurance. The consequences will include lower savings rates, more bank fees (ouch!), and higher interest costs for borrowing. These effects will aggravate the Depression due to less income from savings, and from the greater disincentive to borrow.

As the Depression grinds on, we will continue reporting the FDIC loss statistics and their possible significance.

Is the FDIC Inept, Panicked, or Corrupt?

We looked over the latest bank closures by the Federal Deposit Insurance Corporation (FDIC), and we noted with some alarm how costly these closures were. Putting the cost to the FDIC in terms of losses/assets, the four closures (as of 25/04/09) were insolvent to the tune of 26% to 39% of assets! This level of insolvency is horrible, and marks an incredible deterioration of the health of the United States' banking system. Below is a chart of the losses/assets of all bank closures since December 2007 to April 25, 2009(the beginning of the Depression). We used the data from the FDIC's failed bank list to construct the graph.
Needless to say, the closures by the FDIC are not getting better; we suppose the bright side it that they're not getting worse, either.

Let's look at the hard data: Total assets of all FDIC-failed banks, December 2007 to April 25 2009, and including Washington Mutual (WaMu), in millions, is $388,388.03 - that's $388,388,030,000. The cost to the FDIC for these failures was $18,783.20, in millions. That's a losses/assets percentage of 4.84%; not bad, we suppose...

But WaMu didn't cost the FDIC anything, so let's throw out their assets ($307,000 in millions) from the equations. Revised total assets becomes a modest $81,388.08 in millions, while the cost to the FDIC stays $18,783.20. Sitting down, dear Reader? The losses/assets percentage on these numbers is a whopping 23.08%! On average, approximately a full quarter of every failed bank's assets are trash, and if the latest percentages continue to get higher, that number will be getting much, much worse.

The horrifying insolvency of these FDIC-failed banks begs the question in our post's title: is the FDIC inept, panicked, or corrupt? Bear with us as we ponder each in turn.

All jokes about the Government aside, it is quite possible that the FDIC's leadership is indeed inept. Many other policy-makers in the U.S. Government are showing themselves to be very inept, so we can't rule out the FDIC. However, we don't feel the FDIC is necessarily inept in the classic sense; we posit the FDIC is instead following in the footsteps of the Federal Savings and Loan Insurance Corporation. Simply put, the FSLIC sat on its hands at the beginning of the Savings and Loan Crisis, hoping that the situation with the thrifts would solve itself. Instead, the situation deteriorated and the FSLIC itself went insolvent, and its mission was absorbed by the FDIC. We would be hardly surprised of the FDIC is likewise hoping that the banks will heal themselves. Perhaps by sitting on its hands, the FDIC is rendering itself insolvent, and therefore dooming its mission to be absorbed by a bigger Government agency... oh, perhaps the Federal Reserve.

Instead of inept, let us assume that the FDIC is, instead in a panic. The leadership knows that the greater part of the U.S. banking system is horrifyingly insolvent. They also know that the FDIC insurance fund is completely unable to absorb the losses incurred from fast and hard failures of all the insolvent banks in the U.S. (i.e. most of them). So, instead of having a proactive plan for dealing with the major problems within the banking system, the FDIC instead is reactively lurching from one super-insolvent bank to another with no cohesive plan of attack - or, indeed, of how to pay for all the damage. This panic is only allowing the problems in the banking system to fester, thereby creating even bigger problems down the road. Those could come sooner than anyone might imagine...

Finally, let's assume that the FDIC is corrupt. In this situation, the FDIC's actions are planned and carefully implemented. They are starting with the smallest banks in the nation, and slowly forcing mergers into larger ones, selling off the good assets to the bigger banks and holding the bad assets on its books. As the banking crisis continues, the FDIC will work its way up the food chain, successively cleaning out the banks, until the only remaining banks are the nineteen (or so) super-huge money-centre banks. At this point, the best assets in the U.S. will be in the hands of quasi-private banks, while the worst will be on the books of the Federal Government. Simply put, all losses will be paid for by the American Citizenry, while all potential profits will accrue to the super-huge banks.

Frankly, we can see aspects of all three possibilities at work; any and all combinations thereof would not surprise us. The big question in our mind is, which one is dominant?