Posted on 12/17/2009 7:27:01 AM PST by SeekAndFind
With three banks that were shuttered Friday, there have been 133 U.S. bank and thrift failures this year, more than five times as many as in 2008. Tougher regulations may accelerate the pace next year.
The implosion of several large residential mortgage lenders in 2008 gave way to troubled community lenders, which were hobbled by commercial-construction and real-estate loans that soured.
During 2009, many failed institutions were sold to healthier banks, with the Federal Deposit Insurance Corp. agreeing to share in losses on acquired assets. Holding companies taking advantage of generous terms include New York Community Bancorp(NYB Quote), which took over deposits and some assets of AmTrust on Dec. 5.
Making multiple purchases were U.S. Bancorp(USB Quote), Zions Bancorp(ZION Quote), First Financial(FFBC Quote), Great Southern(GSBC Quote), IBERIABANK(IBKC Quote) and MB Financial(MBFI Quote).
When federal regulators shut down IndyMac Bank in July 2008, depositors lost an estimated $540 million on uninsured balances. That was the costliest failure for depositors in the current credit cycle.
Despite the vast increase in the number of bank and thrift failures, losses to depositors with uninsured balances have totaled $60 million this year based on initial FDIC estimates, a fraction of the $609 million in 2008. The decline reflected the temporary increase in deposit-insurance limits and the requirement that healthier banks must acquire all deposits from failed institutions.
The failures of IndyMac and Washington Mutual, the largest U.S. bank or thrift failure ever, preceded several steps taken by the FDIC, the Federal Reserve and the Treasury to limit bank failures. JPMorgan Chase(JPM Quote) bought Washington Mutual in September 2008
Measures included the Troubled Asset Relief Program, or TARP, which will continue to provide capital to qualifying banks, thrifts and holding companies until October 2010.
The FDIC's Temporary Liquidity Guarantee Program, or TLG, addressed wholesale liquidity problems by guaranteeing payment on senior unsecured debt newly issued by participating bank and thrift holding companies, with guarantees ending in mid-2012.
The agency also reduced the chances of so-called runs on banks by depositors, which contributed to the demise of IndyMac and Washington Mutual, by increasing the basic individual deposit insurance limit to $250,000 from $100,000, which has been extended through 2013.
More importantly, the Transaction Account Guarantee Program temporarily waived all deposit insurance limits on non-interest-bearing transaction accounts. Considering how easy it is for a small or medium-sized business to have large amounts of operating funds flowing through a checking account, this program has been important for community banks. More than 7,100 banks and thrifts are participating and paying an annual fee of 0.1% on transaction account balances over $250,000 for the privilege.
The Transaction Account Guarantee Program was originally set to end on Dec. 31, but has been extended through June 2010.
Come July 2010, depositors with newly uninsured balances at banks perceived to be weak will be more likely to move their transaction deposits, thus removing a source of cheap liquidity. That will hurt earnings and cause liquidity problems for some institutions, possibly hastening the demise of some.
A part of the bank-reform legislation being negotiated in Congress that could have a chilling effect on bank liquidity is the requirement for secured lenders, such as the Federal Home Loan Banks, to take "haircuts" of 20% when a borrowing bank fails rather than being paid in full by the FDIC. That could seriously disrupt liquidity for banks relying on wholesale funding.
Headlines that said the FDIC was running out of money were misleading. While the balance of the agency's deposit insurance fund indeed fell to minus $8.2 billion in September, even after insured institutions were charged a special assessment of 5 basis points on total assets, less core capital, contingent loss reserves of $38.9 billion already set aside to cover expected losses on 2010 left the agency with total deposit insurance fund reserves of $30.7 billion.
The FDIC will further beef up its resources by requiring insured institutions to pony up three years of deposit insurance premiums in this month, or about $45 billion. To keep prepayments from affecting institutions' earnings, banks and thrifts will be allowed to book payments on a regular quarterly basis.
Based on initial loss estimates, bank failures during 2009 have cost the deposit insurance fund $32.4 billion.
It's going down.
“The FDIC will further beef up its resources by requiring insured institutions to pony up three years of deposit insurance premiums in this month, or about $45 billion.”
That’s a nice trick. Imagine the FDIC’s Department of Redundancy Department’s Division of Premium Refund Management Processing. Staffing that alone will pull the unemployment rate down by 2 points.
bump
The FDIC is hiring in large numbers.
FDIC Boosts 2010 Budget, Staff as Bank Failures Rise
Excerpt:
Bank failures have climbed to 133 this year, the most since 1992, as soured commercial-real estate loans and mortgage defaults hobbled U.S. lenders. The agency has hired staff to handle the surge, which pushed the deposit insurance fund to an $8.2 billion deficit in the third quarter.
The additional 1,643 FDIC staff will include 1,559 temporary workers and 84 permanent employees, with a majority of positions added to the division that handles bank failures.
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