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Post by psychecc on Aug 27, 2008 14:55:46 GMT -6
If you were among those here betting the FDIC would run out of money, it looks like the analysts agree with you. But "a half a trillion in borrowing authority"? That's not the same as real money is it? Ouch. Link to full article follows. The FDIC Needs a Backstop: WhalenBy Brooke Sopelsa,Writer/Producer CNBC.com | 27 Aug 2008 | 11:27 AM ET The Federal Deposit Insurance Corp.'s (FDIC) list of troubled banks has increased by 30 percent this quarter, and this jump is causing the FDIC and the banking community to prepare for tomorrow’s problems today.
The FDIC may have to borrow money from the Treasury Department to handle an expected wave of bank failures coming down the road, according to the Wall Street Journal.
It would not be surprising if this were to occur, according to Chris Whalen, managing director of Institutional Risk Analytics. In an interview with CNBC, Whalen said the FDIC needs a backstop.
"They need about a half a trillion dollars in borrowing authority, and they need a vehicle to own these banks while we triage them and sell them."
Whalen added that he expects big bank failures might be on the way.
"It depends on the loss rate," he said. "If we are way over 1990s levels, by say the third quarter, then I would tell you there’s going to be some institutions that may not be able to raise private capital and may need a bridge."....
“We don’t think this credit cycle has bottomed out yet,” said FDIC Chairman Sheila Bair at a press conference Tuesday. “I don’t like to make predictions, but I think it’s going to continue to be very challenging, and as I said I think the number of banks and assets on the troubled bank list will continue to go up.”www.cnbc.com/id/26421989/
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Post by unlawflcombatnt on Aug 27, 2008 16:47:49 GMT -6
"They need about a half a trillion dollars in borrowing authority, $500 billion is an incredible amount of money for taxpayers to be on the hook for. Here's another story on the same subject, from Fox News: FDIC weighs Tapping Treasury as Funds Run LowWednesday, Aug. 27 2008 Short-Term Loans Might Be Needed After a Bank FailureBy DAMIAN PALETTA and JESSICA HOLZER " Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures.
Ms. Bair said the borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank. The borrowed money would be repaid once the assets of that failed bank are sold." Who are they going to sell them to??
"The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just 9 banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis.
I would not rule out the possibility that at some point we may need to tap into [short-term] lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes," Ms. Bair said in an interview...." 'Liquidity purposes?' You mean like paying executive salaries and bonuses? " She said she did not expect the FDIC to take the more dramatic step of tapping a separate $30 billion credit line with Treasury, which has never been used." 'More' dramatic than what? 'More' dramatic than borrowing stealing taxpayers' money to keep rich bankers from becoming less rich? " The FDIC said Tuesday its "problem" list of banks at risk of failure had grown to 117 at the end of June, compared with 90 at the end of March.
The FDIC's deposit insurance fund reimburses depositors who lost money in a bank failure, typically up to $100,000. The fund's balance fell in the 2nd quarter to $45.2 billion. That is just 1.01% of all insured deposits, low by historical standards.
The biggest dent came from the July 11 failure of IndyMac Bank, which the agency now says is expected to cost $9 billion. Previously it had said losses would be between $4 billion to $8 billion." Is this number going to keep on growing? Will IndyMac eventually cost the FDIC $15 billion? $20 billion? "
"In another move to bolster the insurance fund, Ms. Bair said the agency will propose in October charging higher premiums to thousands of U.S. banks. These contributions are one of the fund's major sources of income. The FDIC has been wrestling with how much to raise the fees because the extra expense would put stress on already struggling financial institutions.
Ms. Bair said the agency could charge higher premiums to banks that rely on high-risk deposits to fuel growth or have an "excessive reliance" on secured funding, such as advances from one of the 12 federal home-loan banks. Banks with less risky profiles would still likely have to pay more, but she said their fees shouldn't increase as much as high-risk banks.
"We should reward behavior that reduces our costs," Ms. Bair said.
The FDIC was created during the Great Depression, and in 1990 it received the authority to borrow short-term funds from Treasury. [And putting taxpayers on the hook for bank bailouts.] It tapped that facility in 1991 and by June 1992 had accumulated loans of $15.1 billion. The money was repaid by August of the following year. This is just one of the sources of funding available to the FDIC.... [That is, until the Fed creates still another new option for picking taxpayers' pockets, like it did for Wall Street Investment Banks.] " This time around, the FDIC would use the funds to bridge the gap between paying depositors and selling a bank's assets, which can take several years [or several decades] in the worst cases.
In the FDIC's quarterly review, issued Tuesday, the agency unveiled a litany of data that shows banks reeling under the pressure of bad loans. It said the U.S. banking industry reported net income of $5 billion in the 2nd quarter, the 2nd-lowest level since the end of 1991. Also, the amount of loans and leases banks wrote off entirely jumped in the quarter to $26.4 billion, the highest level since 1991.
The percentage of "noncurrent" loans and leases -- such as those more than 90 days past due -- hit 2.04% at the end of the 2nd quarter, the highest level since 1993.
Firms set aside $50.2 billion to cover such loans, more than 4 times the amount of a year ago. Still, the FDIC said the reserves weren't keeping pace with higher delinquencies. [Neither are the lies and deception needed to cover up the situation.] "
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Post by unlawflcombatnt on Aug 27, 2008 18:33:31 GMT -6
from CNN Money money.cnn.com/2008/08/26/news/economy/fdic_banks/index.htmProblem bank list keeps growingFDIC says list of troubled banks in 2nd quarter grows to 117 with $78 billion in assets - up from 90 banks, $26 billion in assets in 1st quarter.By David Ellis and Tami Luhby August 27, 2008 " The number of troubled banks on the government's watch list grew dramatically last quarter.
The Federal Deposit Insurance Corp. reported Tuesday that the number of firms on its so-called problem bank list grew to 117 during the second quarter - its highest level since the middle of 2003. There were 90 banks on the problem list in the first quarter.
FDIC Chairman Sheila Bair expressed little surprise at the increase and warned that the number would grow.
"More banks will come on the list as credit problems worsen and assets of problem institutions will continue to rise," said Bair in a press conference.
The number of troubled institutions has moved steadily higher this year - nearly doubling from 61 at the same time a year ago - as banks across the country struggle to cope with the fallout in the housing market and rising loan losses.
Problem banks typically face difficulties with their finances, or are suffering through operations or management issues that pose a threat to their existence.
Banks included on the problem list are considered the most likely institutions to fail...
The FDIC...doesn't reveal the names of the banks on the list, but it does give the total assets of these institutions.
That number was $78.3 billion during the quarter, up sharply from $26.3 billion the previous quarter. The lion's share of that figure included...IndyMac, which boasted assets of $32 billion before it collapsed in mid-July.... [The FDIC-covered losses on IndyMac have increased from the initial estimate of $4 billion to $9 billion. With assets of $32 billion, what's to keep the Indy's losses from rising even higher -- to $15 billion? or $20 billion? ]
Including IndyMac, 9 banks have failed so far this year.
The most recent failure came last Friday with the Topeka, Kansas-based Columbian Bank and Trust. As is typically the case, the FDIC orchestrated the sale of the company's branches and deposits to another institution, in this case selling them to the Chillicothe, Mo.-based Citizens Bank & Trust....
Indeed, bank failures are widely expected to continue - particularly among those institutions who tend to generate most of their business from commercial real estate, especially construction and development loans, said John Corston, an associate director at the FDIC.
"That area is fairly stressed and we're seeing more institutions now becoming problems by virtue of their exposure there," Corston said....
Another tough quarter
Overall, the 2nd quarter proved to be yet another difficult period for the nation's banks as industry profits fell 87% to $5 billion from $36.8 billion a year ago.
Driving that decline, in part, was a surge in loan-loss provisions. Facing additional deterioration in the housing market and further weakness in the broader economy, FDIC-insured banks set aside $50.2 billion during the quarter, more than 4 times the quarterly total of $11.4 billion from a year ago.
At the same time, net charge-offs, or loans banks don't think are collectable, continued to rise, totaling $26.4 billion in the 2nd quarter - its highest level since 1991.
Banks also saw their first decline in assets since 2002. Total assets fell $68.6 billion during the quarter, the largest drop since early 1991.
As the housing market continues to sink, bankers have been reining in their lending. Real estate construction and development loans, for instance, registered their first quarterly decline since early 1997, falling by $5.4 billion, or 0.9%.
But FDIC officials said this tightening is crucial to helping the banks and the economy heal.
"The ongoing adjustments to credit standards are absolutely necessary to put the industry on a sounder footing to extend credit and finance economic activity down the road," said Rich Brown, the FDIC's chief economist." money.cnn.com/2008/08/26/news/economy/fdic_banks/index.htm
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Post by agito on Aug 27, 2008 19:28:30 GMT -6
I liked the sentence by sentence commentary- particularly:
'Liquidity purposes?' You mean like paying executive salaries and bonuses?
hadn't given much thought about the "liquidity" till now
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