FDIC Fund Goes Into the Red

It seems that the healthy banks will get to come up with new funds all over again to protect the unhealthy banks, or maybe it is the regionals and community banks which will get to fund the problem.  Or with any luck, the taxpayers can get to participate in the misery here.  The Federal Deposit Insurance Corporation, or FDIC, has reported that the deposit insurance balance has now slipped into negative territory in the third quarter.  The balance fell by $18.6 billion and is now at -$8.2 billion.  Part of the reasoning for this is because the FDIC had to set aside $21.7 billion in provisions for additional bank failures.

There were 50 banks which failed and were taken over in the quarter.  But this list of “troubled banks” rose to 552 in Q3 from 416 in Q2. Interestingly enough, the banks covered posted a profit of $2.8 billion despite credit coming in sharply and despite loan balances being down almost 3% or $210 billion.  That drop in loans is the largest on record.  Assets fell by 0.4% or by over $54 billion.

Thankfully we have seen slower charge-offs from more recent data outside of this report, because the charge-off figure was $50.8 billion from the banks in Q3 with the highest reading at 2.71% of loans. Delinquent loans (non-current) were up over 10% to $366.6 billion in Q3.

This marks the second time in the FDIC history that the funds have gone into the negative balances.  With the troubled banks rising and with the total count of seized banks now over 100, this is probably going to continue looking awful for the Q4 report as well.  The good news is that, just like unemployment, is a lagging indicator…. as long as it doesn’t keep going on and on.

JON C. OGG
NOVEMBER 24, 2009