FDIC Discloses Deposit Insurance Fund Is Now Negative

Tyler Durden's picture

In an unprecedented disclosure, the FDIC has highlighted that it expects the DIF reserve ratio to be negative as of September 30. As there are a whopping 48 hours before that deadline, one can safely assume that the DIF is now well into negative territory: as of today depositors have no insurance courtesy of a banking system that has leeched out all the capital of the Federal Deposit Insurance Corporation. Let's pray there is no run on the bank soon.

Pursuant to these requirements, staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative. This reflects, in part, an increase in provisioning for anticipated failures. In contrast, cash and marketable securities available to resolve failed institutions remain positive.

Additionally, the FDIC has now raised its expectation for bank failure costs from $70 billion $100 billion. Feel free to expect this number to continue growing.

Staff has also projected the Fund balance and reserve ratio for each quarter over the next several years using the most recently available information on expected failures and loss rates and statistical analyses of trends in CAMELS downgrades, failure rates and loss rates. Staff projects that, over the period 2009 through 2013, the Fund could incur approximately $100 billion in failure costs. Staff projects that most of these costs will occur in 2009 and 2010. Approximately $25 billion of the $100 billion amount has already been incurred in failure costs so far in 2009. Staff projects that most of these costs will occur in 2009 and 2010.

First Mary Schapiro has failed at her task of "regulating" anything on Wall Street, and now Sheila Bair presides over a newly insolvent institution. Chalk one up to Washington's success at "containing" the crisis. Zero Hedge wishes Ms. Bair all the luck in the world in returning the DIF to its statutory minimum requirement of 1.15% of all insured deposits (a shortfall of a mere hundred billion or so). Maybe she can convert the FDIC to a REIT and have Merrill Lynch do a concurrent IPO and follow-on offering (while Goldman raises it to a Conviction Buy which incorporates the firm's expectations for 10% GDP growth in 2010 coupled with projections for $1,000 per barrel of crude)?

FDIC's full memorandum outlining its failure can be found here.


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Assetman's picture


"We're broke.  But at least we're telling the truth.... today."

Some consolation.

TumblingDice's picture

So thats what they were saying. I got all confused with all the negative and positive numbers and basis points.

This is huge. They might have to tap the Treasury line of credit. But wait the whole $500 billion line is not accessible right now because there is less than $300 billion left on the Treasury's credit line until it runs into the current debt ceiling. This will definitely put pressure on the Congress to raise that ceiling sooner rather than later.

TheGoodDoctor's picture

I had wondered why only one bank failed this past weekend.

sondog's picture

They did loss sharing with the acquiring bank for essentially all the assets. That's how they defer payment until later. But the cost will likely be close to 50% (892 million I think, on 2 billion).

Anonymous's picture

ha... i bet there will be no bank failures this friday:) none this matters anyway because we are currently under foreign occupation. can somebody please explain to me why hardin, montana has a private police force whose symbol on their black mercedes vehicles carry the serbian coat of arms? http://www.stevequayle.com/News.alert/09_Photo_of_Day/090929.photo.of.da...

glenlloyd's picture

Ditto on that, one failure was far too meager to be reasonable. I've had an inkling for some time that they were stalling on taking down some institutions because they were approaching the bottom-o-the barrel on the DIF.

Chuck's picture

Anyone remember TD's post a few months ago (http://www.zerohedge.com/article/how-world-almost-came-end-2pm-september-18):

On Thursday (Sept 18 [2008]), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

So the question remains, if the FDIC is now [visibly] insolvent, how long before this draw-down occurs again? Tomorrow? Tonight? It it happening right now?

Gilgamesh's picture

Not anytime soon.  Everyone assumes that the FDIC has the full faith and credit of the US behind it, like they assume Fannie and Freddie do now.  Government will never let voters lose their life savings because a bank failed anymore.  FNM and FRE have the implicit guarantee; FDIC has that in spades.

Chuck's picture

True. Our population is so severely under-educated when it comes to the financial systems that they'll blindly accept anything MSM says is happening or not happening. I guess my question is: Is there a chance that a run on the banks could happen in the next few days over this or am I just misinterpreting the severity of the situation?

Anonymous's picture

i believe wells is in the most precarious situation
of the money center banks....i have read on zh
that it has negative equity and tier 1 capital....
but i am not reporting that as a fact....

does anyone have any factual information on wells
fargo equity and tier 1 capital ratios?

citi is also in near meltdown condition as i
understand it....again this is only hearsay from

TumblingDice's picture

An actual run on deposits by J6P is less likely than an electronic bank run on themselves (which is a pretty amusing concept). It can happen however, if there begins to be serious talk about the solvency of the US government.

For all intents and purposes I consider the government insolvent already, and destined for some form of default, but the public hasn't caught on yet. A heated deliberation over the debt ceiling, which will have to be raised in order to just cover the interest and maturing treasuries; or any public negotiation over Treasury purchases that will have to take place after QE is done might just make people think that the government backing FDIC is not as sound as they thought.

But then again, the banks might be holding "too much capital" as per Dick Bove, so none of this should be a problem.

Anonymous's picture

the good news is that all of this debt and need for more will prove how wealthy we are because economies are not like households....i feel some green shoots coming on....

Joe Sixpack's picture

Most households don't have a printing press (inkjet printers don't really do the job).


Then again, inkjet printers can print IOUs or checks, backed by the full faith and credit of "<insert your name here>".

Mos's picture

"The money's not here..."



If people only knew their hard earned savings are gone forever in all the foreclosed homes and the half finished condo skyrises.

TwoJacks's picture

"Your money's in the Kennedy house"

Cursive's picture

How is the "fund balance" negative but, "[i]n contrast, cash and marketable securites available to resolve failed institutions remain positive"?  This really is how 4th graders think, write and speak.

Anonymous's picture

It's accounting. They've incurred or estimated losses greater than their current cash balance. So yes, there's a few billion dollars in cash laying around but they've already marked losses of a few billion plus one.

Makes sense to me.

Anonymous's picture

Maybe she can convert the FDIC to a REIT and have Merrill Lynch do a concurrent IPO and follow-on offering (while Goldman raises it to a Conviction Buy which incorporates the firm's expectations for 10% GDP growth in 2010 coupled with projections for $1,000 per barrel of crude)?

That was funny shit!

Anonymous's picture

Things must be much worse than they are saying for this to be out there today.

And it looks like they want the next 3 years payments upfront this December - that's reassuring.


Cognitive Dissonance's picture

Which begs the question, what happens when the $50 Billion + they plan on collecting runs out in 6 months? Do they then collect for years 2013 - 2016?

How do I say this? When news like this no longer shocks me, we are way over the abyss and too numb to notice.

Anonymous's picture

CD -

Many of us are comfortably numb - without the heroin.

I don't think the FDIC has a plan for when the next 45 billion runs out. If they did, they would be implementing it today. Their move smacks of despiration.

Anonymous's picture

desperation is the english way....

sondog's picture

This comment's over.

Thought I'd something more to say.

Medic's picture

Then I'll see you on the dark side of the moon..... 

Anonymous's picture

I like to be here when I can

on the dark side of zh.

SWRichmond's picture

They do seem to be kicking these cans a shorter and shorter distance each time, don't they?

TumblingDice's picture

Cans are so 1980's. But you can break your foot kicking a boulder.

economessed's picture

This is why the phrase "In God We Trust" appears on each note, because there is nobody left to trust who works in the Federal Government.  We're broke, the party is over.

pigpen's picture

Sheila and Mary, the world would be a better place if honesty, trust and respect were accepted as foundational constructs of any endeavor, be it love, business or life.



Anonymous's picture

Sweet pigpen, naive but sweet. I even leaked a tiny tear.

Faith, hope, charity, benevolence, love, compassion, honesty, integrity--those are all attributes of an ancient age and so intangible and incalculable, they can play no part here.

Might as well conjure up biblical ideology, or moral consequence, or all the god-man boogie men.

God is dead: therefore, human accountability and judgment is dead. That leaks over into every action of mankind. There is neither good or evil in this best of all possible worlds. These ideas have no place in our brave new world.

Anonymous's picture

only in the minds of the infidel.

Anonymous's picture

This reminds me of a story I once heard. Someone had written in a public place the famous quote from Nietzsche, "God is dead" and right below it was written "Nietzsche is dead" signed "God".

Anonymous's picture

"... the world would be a better place if honesty, trust and respect were accepted as foundational constructs of any endeavor, be it love, business or life."

this sure would put a lot, if not all, of the lawyers out of work. no games. you give your word and then stand behind it (i.e. it is called responsibility).

perpetual-runner-up's picture

Good thing they have back all that Citi and GE paper...

Anonymous's picture

So we're doomed right? Are we doomed yet? I'd like to start the revolution but I'm not sure if we're doomed.

Cognitive Dissonance's picture

Trust me, no one's starting a revolution until the fall TV season is over. But then baseball season begins and the kids get out of school.........

Maybe sometime around 12-21-12?

jerv's picture

I'm coming over for deerhunting in November, so I suggest you all stay calm until then.

But I can't help thinking... If you pussies had as much guts as the cheese eating surrender monkeys, DC would be filled with heaps of burning tractor tires a long time ago.

Anonymous's picture

new york should be smoldering with the bodies
of dead banksters - or more to the point
dead rockefellers and rothschilds

matthylland's picture

A few of the bank conference calls I listened to a while back talked about the increase expenses from the FDIC (snv comes to mind...maybe stsa also, but not sure on that). Now they are going to be forced to pay 3 years of deposit insurance at once?
What will that do to these bank earnings this coming quarter?

Anonymous's picture

It won't affect earnings unduly. The cunning plan is that the banks will hand over the funds up front, but only recognize the charge against earnings on a quarter-by-quarter basis over the relevant three year period.

Result: Banks capital is depleted up-front, but earnings continue on their merry way unaffected by these shenanigans.

Cognitive Dissonance's picture

God forbid the FDIC upset bank stock prices based upon inflated and unrealistic earnings projections?

Are you out of your mind?

Anonymous's picture

absolutely correct....special rules will have
to be created to permit the accounting of
capital ratios since the real capital will
be in the fdic's pocket but that is what modern
accounting is for....

i am sure there is the makings of a swap facility

tradertim's picture

"The Federal Deposit Insurance Corp. made the projections as its board voted to propose requiring banks to prepay an estimated $45 billion in regular insurance premiums for 2010-2012. The proposal could take effect after a 30-day public comment period."

problem solved. woohooo!!!

of course, expect banking fees to rise dramatically and credit card interest rates to rise to 40% to cover it. that 45 billion will get past on to the consumer one way or the other.

KidDynamite's picture

"Staff’s current projection of $100 billion in failure costs from 2009 through 2013 is higher than staff’s projection in May of $70 billion over the same period. Projected failures have increased due to further deterioration in the condition of insured institutions, as reflected in the increasing number of problem institutions. Asset quality problems among insured institutions are not expected to abate in the near-term."


Didn't the FDIC get the memo?  green shoots! the recession is over! everything is better!


In fact, the FDIC seems to be just about the only ones telling the truth - of course, you have to actually read the paper to get the truth, which 99% of America won't do.  The TRUTH is that the loss estimates have risen almost 50% since May - while the talking heads are out during the same period proclaiming how everything is better.

Green Sharts's picture

And Chris Whalen projects failure costs of $300-$400 billion versus the $100 billion the FDIC is projecting.

3 years of fees paid in advance by banks is only estimated to be $45 billion.

In October '08, the FDIC was given 5 years to get its reserves back to the minimum of 1.15%.  In February '09 that was increased to 7 years and in May it was increased to 8 years.  But the FDIC's projections of failure costs are up 43% since May and probably still far too low.  So there is no realistic timetable for the FDIC to bring its reserves back to the statutory minimum.

Since the FDIC expects the biggest costs in 2009 and 2010 it figures to blow through the prepaid bank fees for 2010 to 2012 before the end of 2010.  Presumably the only place to go then will be Treasury.  If the FDIC plans to stick to its history of being fully funded by member banks, the banks would ultimately have to pay back all that Treasury borrowing, plus enough to build the FDIC reserves back to 1.15% of insured deposits.  How much would that cripple bank earnings and for how many years?

Anonymous's picture

that last paragraph is the essence of the problem....
my guess is that the fdic thinks it can ride out
next year with this confiscation of pulled forward money from its members (and to some degree all i can say
is tant pis) and then go to the treasury and tap
that 500b loc c. 2011 - kick the can....

i think it is considered too politically sensitive
to do that just now when the debt ceiling is
coming up for consideration....