FDIC: Getting Ready for the Worst
The US banking system has over $8.5 Trillion in deposits, $4.4 Trillion of which are backed by the FDIC. With a paltry $45B in insurance money and a growing list of ailing banks, the FDIC is becoming very concerned they will likely run out of money if significant issues are encountered... Problem is: Significant issues are popping up everywhere and they are nearly surrounded.
Note: The failure of just one large institution (i.e. Wamu) could wipe them out.
So what's going on in the US Banking system?
From Mike Larson, Money and Markets: Latest FDIC Report Reads Like a Horror Novel
Bank income PLUNGED 86.5%! Insured commercial banks and savings institutions reported net income of $5.0 billion for the second quarter of 2008 — down a whopping 86.5% from a year earlier.
Loan loss provisions QUADRUPLED! Loss provisions totaled $50.2 billion, more than four times the $11.4 billion quarterly total of a year ago. Second-quarter provisions absorbed nearly one-third of the industry’s net operating revenue — the highest proportion in 19 years.
Actual loan losses nearly TRIPLED! Bad loan losses soared to $26.4 billion in the second quarter. That’s almost triple the $8.9 billion that was charged off in the second quarter of 2007 and the highest quarterly charge-off rate in 17 years.
Credit card losses rose 47% ... commercial and industrial loan losses more than doubled, increasing 128% ... home equity loan losses jumped 633% ...
Plus, loan defaults on residential mortgage loans soared 822%.
And get this: Bad construction and land development loans skyrocketed a staggering 1,227%!
Surging loan delinquencies signaled MUCH more pain to come! The number of past-due loans and leases rose for a ninth consecutive quarter, posting the second-largest quarterly increase in the nine-quarter streak — a dead give-away that bank losses will continue to surge for the foreseeable future.
List of Problem Banks Grow:
Guardian.UK: FDIC sees 117 problem banks; most since 2003 (Remember, INDYMAC wasn't even on the list)
The number of troubled U.S. banks rose 30 percent to 117 in the second quarter, the highest level in five years, and a top regulator warned that conditions will worsen as the housing slump and credit crisis continues to pound profitability.
Nine U.S. banks have failed so far this year, including mortgage IndyMac Bancorp Inc, which has drained the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks.
The FDIC said the sector's earnings fell 86 percent from a year earlier to $5 billion in the second quarter, mainly due to a fourfold rise in provisions for bad loans to $50.2 billion. With the exception of the fourth quarter of 2007, industry profits were the lowest since the fourth quarter of 1991.
Delinquent loans -- those more than 90 days past due -- jumped by almost 20 percent during the quarter to $162.9 billion, the FDIC said.
"The numbers are alarming, but we are coming off of an incredibly low base of problem institutions and failures," said Mike Stevens, senior vice president for regulatory policy at the Conference of State Bank Supervisors.
Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.
The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.
The fact that the agency is considering the option again, after the collapse of just nine 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, the Journal said.
FDIC Getting Ready for Bigger Problems:
The Federal Deposit Insurance Corp. is preparing to sign a five-year lease to add five floors of space at its Dallas regional office as the agency prepares to increase scrutiny of failing and troubled U.S. banks.
The federal agency, which insures deposits and disposes of failed banks and their assets, will add 125,000 square feet to the 185,000 square feet it rented last year at 1601 Bryan St., a 49- story tower in downtown Dallas. That agency will add about 300 staff at the building, including some of the 69 retirees it is bringing back to help handle the increased workload, said spokesman Andrew Gray.
``Already you've seen nine failures of institutions this year,'' said Gray. ``While historically this isn't a large number, it does represent an increase over the past two years. We anticipate additional failures and thus we would anticipate additional workload.''
The staff additions would bring the total number employees at that location to about 850.
We're currently dealing with a self-perpetuating, downward, nearly out-of-control spiral:
Debt ladened US Consumers are strapped, defaults are increasing across the spectrum, and the housing, commercial real estate and construction markets are getting worse. These issues are increasing writedowns/losses, impairing already severely deteriorated banking system capital ratios and hampering future credit creation/banking system earnings - all exacerbating the perpetual feed-back loop.
So, is there light at the end of the tunnel?
Unless the real estate markets and credit conditions improve soon (highly unlikely) I don't expect to see light at the end of the tunnel for quite some time. As a matter of fact, the odds are probably higher for a tunnel collapse than for catching a glimmer of emergent light.