FDIC Hits Record "Default" Level As Deposit Insurance Fund Plunges By $12.7 Billion To NEGATIVE 20.9 Billion

Tyler Durden's picture

From Dow Jones:

The U.S. banking industry continued to struggle in the fourth quarter, as the number of banks on the brink of failure continued
to rise and the government's fund to protect deposits fell sharply into the red.

The Federal Deposit Insurance Corp. said Tuesday that its deposit-insurance fund fell to $20.9 billion at the end of 2009, a $12.6 billion drop in the final three months of the year, as bank failures continued at a pace not seen since the savings and loan crisis. The fund's reserve ratio was -0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund.

The deposit insurance fund is unlikely to soon see a respite from a decline in the number of failing banks: The FDIC said the number of banks on its "problem" list climbed to 702 at the end of 2009 from 552 at the end of September and 252 at the end of 2008. The number of banks on the list, which have combined assets of $402.8 billion, is the highest since June 1993.

"The continued rise in loan losses and troubled assets points to further pressure on earnings," FDIC Chairman Sheila Bair said in a statement. "The growth in the numbers and assets of institutions on our 'Problem List' points to a likely rise in the number of failures."

Industry indicators deteriorated nearly across the board. The FDIC said loan losses for U.S. banks climbed for the 12th straight quarter, while the total loan balances for U.S. banks continued to fall. The agency said the quarterly net charge-off rate and the total number of loans at least three months past due both were at the highest level ever recorded in the 26 years the data have been collected.

Net charge-offs of troubled loans occurred across all major loan categories, led by a $3.3 billion increase in residential mortgage loans. The FDIC said U.S. banks' coverage ratio--reserves divided by the amount of noncurrent loans--fell to 58.1% in the fourth quarter from 60.1% in the third quarter.

The FDIC did cite some reasons for optimism. The banking industry was able to report a modest profit of $914 million in the fourth quarter, compared with a record loss of $37.8 billion in the final three months of 2008. And while the largest banks were the beneficiaries of much of the earnings improvement, the agency said more than half of FDIC-insured banks saw a year-over-year improvement in their net income.

Banks' profits were helped by improvements in trading revenue, which totaled $2.8 billion the fourth quarter, and servicing income, which represented a gain of $8.0 billion. The FDIC also said that more than half of all banks reported higher net interest margins in the fourth quarter compared with third-quarter levels.

"Resolving these credit market dislocations will take time," Bair said, describing banks as "bumping along the bottom of the credit cycle."

Here is the full abysmal Q4 FDIC report.

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tenaciousj's picture

Ahhh, I love the smell of financial collapse in the morning.

hedgeless_horseman's picture


So without additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero later this year. To be sure, we won't run out of money. We're 100 percent backed by the full faith and credit of the United States Government. No depositor has ever lost a penny on an insured deposit. And that is NOT going to change.

-Bobblehead Bair


Mad Max's picture


Take your soma.

You will get paid 100 cents on the dollar in nominal terms.

Disclosure: long wheelbarrow makers.

WaterWings's picture

Think horizontal integration. Long: wheat, yeast, ovens, bicycles, and wheelbarrows. "Home delivery available!"

Anonymous's picture

I am intrigued by your position in wheelbarrow makers. What is the ticker symbols of the wheelbarrow makers you invest in?
Fresno Dan

william.smith61's picture

Control Arm
I can't say enough negative about...The Fed is telling a lot of lies to the market...

jibran's picture

Love is knowing that the person you want to spend your life with will give you the last of anything that they have. Love is just being able to smile at the thought Credit Card Factoring

Karston1234's picture

The FDIC also said that more than half of all banks reported higher net interest margins in the fourth quarter compared with third-quarter levels. online ged

Fox Moulder's picture

So who is supposed to take over the FDIC when they are insolvent?

Anonymous's picture

Amen! Absolutely the 'must have' flavor to go with a
freshly ground cup of imported coffee (while it lasts)!

Cognitive Dissonance's picture

The FDIC must "go to the well" for more money, only once there they will find sour water at best. Once they begin borrowing money in earnest from the Treasury, any "independence" they might have had goes out the window.

The FDIC has now been deep captured by the rest of the Ponzi, assuming it wasn't already captured.

Eternal Student's picture

Agreed. But people are missing the main story here. About a year ago, the number of Bad Banks was about 300. The "27%" increase has only been since the last time they revised the numbers.

Year-over-Year the number of bad Banks has more than doubled.

There have been two good independent estimates of the number of bad banks out there. One was by Reggie Middleton (1300-2000), and I forget who did the other (2000-2500). These intersect at around 2000 bad banks, or about 25% of all the banks out there.

That's what I call deep capture.


Cognitive Dissonance's picture

I'm so inured to the spin that I don't even take notice any more how they manipulate the facts to distort and deceive since I already understand that they do. I watch closely each Busted Bank Friday for the real facts, when they must admit to the world that this or that sorry piece of s**t bank must finally taken be off the heart/lung machine and laid to rest. Thanks for the reminder.

BTW, there is no such thing as a "bad" bank, just a deeply misunderstood bank.

Stuart's picture

Ya, go ahead guys, raise rates now!   Thinking we're nearing a Dirty Harry moment here...  Do ya feel lucky, punk?

P Rankmug's picture

Whatever you do don't tell the market.  It might sell off if news ever leaked out that our entire financial structure is a joke of a facade.

Mad Max's picture

Negative $20 billion is the "new" positive $100 billion.

Hey, springtime is coming!

tenaciousj's picture

-20 billion isn't that bad.  Just multiply by -1, and voila!

Mad Max's picture

I'm eagerly awaiting a Congressional blue-ribbon committee on "experimental accounting."

economessed's picture

Didn't you hear?  Accounting is being added to the X-Games in 2010.  It is the newest extreme sport -- all the kewl kids are doing it.

Anonymous's picture

...a simple solution in the age of electronic currency...just move the decimal one space to the left on on all my debts and one space to the right on all my savings...two spaces will solve the problem even faster. Leverage to three spaces and we're back in the high life again...Right?

Necesito Oro y Plata

Clampit's picture

Good thing this is denominated in fiat currency, otherwise those negative balances might be "difficult".

percolator's picture

One of us has got to change our avatar.

MarketTruth's picture

Hey, springtime is coming!

Springtime for Hit___ and Germany... as they try to save Europe (instead of destroy it) this time around. In both situations the outcome was not pretty.

LoneStarHog's picture

FDIC...But...But...Suze "The Big O" Orman said.....

Anonymous's picture

Got cash?

Anonymous's picture

The real economy is in a downward spiral. The legendary market analyst, Charles Biderman, believes that the only thing holding it up is the PPT. I agree 100%. When the dense market players like the mutual fund managers and Barry Ritholz figure this out, the market will plunge.

spekulatn's picture

Well said, #241507.

besodemuerte's picture

So...my matress is now the best place for my money it seems.

Cognitive Dissonance's picture

Your "money" is simply very nicely printed pieces of paper which are being rapidly debased. Or printed digits on a statement. Nothing more, nothing less. The illusion is that there is value to be found in those greenbacks. This illusion is perpetuated by you and I, who continue to pass paper to each other in the hope we will receive "real" things for our (worthless) currency. It is you and I who determine the ultimate value of these green rags. And we are rapidly loosing confidence.

Based upon the 94% drop in value since the Fed was created and the volume of electronic "money" being created on a daily basis, those pieces of paper are not safe anywhere.

Shameful's picture

It's a mad dash to trash cash! Any idea on if they will just freeze electronic banking? We have never seen a currency collapse when most of it was digital. I really wonder how it will work out since most exchanges are done either with credit or debit cards. I get the feeling we will just have a collapse of buying and selling. After all credit cards will be a terrible business if they can't collect immediately and have to wait till months end and if there is a "grace period" for full payment. If nothing else it will give history an answer as to what happens when a digital exchange system collapses.

Cognitive Dissonance's picture

"Any idea on if they will just freeze electronic banking?"

I've been giving a lot of thought to this very question and the short answer is "I don't know" since the very fact that it's electronic means the distortions and manipulations are endless. Who knows what they could come up with, particularly when you recognize that the average Joe will ultimately want the collapse to stop. Meaning that the average Joe will accept anything, regardless how absurd or outrageous, if the powers that be promise to stop the collapse.

Once you become dependent upon the drug, you will kill for it.

Anonymous's picture

Should I get out a couple thousands of my SunTrust and Banco Popular now and put it in the mattress?? I mean, is it that bad? I'm 45% Cash (at bank), 20% Gold(phy), 30% Silver(phy), 5% Stocks (emerging) and then my 401k in money market that i cannot remove. ANy suggestions?

Anonymous's picture

It sounds like you have the right idea - except for the cash part. Perhaps another currency instead of the USD?

- Medic

Anonymous's picture

you fucking hold cash?

What are acting like an idiot.

Here is what you do to not get FUCKED.

Take cash-> Buy more physical, get it.

Not hard, and you ain't stupid, so why the FUCK are you still owning a significant cash hoard. (You think gold and silver OR cash is going to be worthless at the end of all this, come-on, think, you can do it, which one?)

Anonymous's picture

How elegant.

seventree's picture

FDIC covered bank deposits are as safe a place for cash as you will find these days. Their fund will never be allowed to run dry because that would trigger an old-fashioned run on thousands of real banks, simply not an option. Of course, guaranteeing savings with manufactured money ultimately dilutes the value of those very savings, but the same thing would happen to dollars in mattresses or HTM Treasuries.

Edit: I am similarly positioned re cash vs PMs. As you can see above, lots of folk think it foolish to have any cash. They may be right, but I don't have the nerve to pile everything into gold/silver. I am already in retirement and trying to protect my future. Logically PMs should counterbalance whatever happens to dollars, but even logical investments could remain irrational longer than I can hold my breath.

curbyourrisk's picture

It is the only place......not the best place.


The bet place is in my mattress....

Anonymous's picture

Wall Street Welfare - Crank up the press, we've got bonuses to steal!

sodbuster's picture

Move along people- everything is fine. Ignore those corpse's by the wayside. Your mattress probably IS the best place for your money- pays about the same return,too.

Anonymous's picture

- 1%/yr roughly, right?

sodbuster's picture

I am more concerned about the return OF my money than the return ON my money. --Mark Twain

Coming Down in Powdery Sparks's picture

Don't they by law have to have something like 1.5% of covered assets in the DIF?  Isn't there a penalty for not following the law?  If not, why have the law in the first place?


RSDallas's picture

"bank failures continued at a pace not seen since the savings and loan crisis."


I'll re post this here. 

I had a discussion with a friend of mine yesterday who has been trying (for some time now) to purchase non performing residential real estate properties (lot's & homes) from the local lending institutions in and around Dallas, Texas.  He told me that asset managers at the banks are all telling him that they are sattisfied in sitting back and collecting interest payments from those who can pay even though they know that the property is underwater and is likely to stay materially impaired.

The bankers are also not requiring their clients to put up additional equity.  He tells me that this is happening because the regulators are NOT requiring the banks to take any action on any properties as long as the clients are making interest payments, which by the way have often been set well below market rates. 

He tells me that the bankers are just waiting for a recovery.  "Houston, we have a problem!"  Herein lies our challenge going forward folks.  This Case Shiller graph could look like this for years and years to come.  Especially when you recognize that the financial institutions and regulators are applying this strategy to all assets, land, office buildings, homes, apartments and on and on and on. 

I just don't get it.  I was just entering the real estate business in the late 80's when the Resolution Trust Company was formed to handle that Real Estate bust, which was also impacted by the Oil industry. Anyway, what I do remember was that the regulators and FDIC weren't screwing around and letting the S&L's keep the crap on their books.  They were liquidating that crap and closing down the S&L's as fast as they could, or it at least appeared that way.  The Nation (and Texas where a lot of damage was done) did just fine during this period of mass liquidation.  Was it painful for some?  You bet it was and rightly so, it should have been.  It's no different this time in that some stupid lenders made a lot of stupid loans to a lot of stupid buyers. 

The RTC worked then, so why is the FDIC and the White House choosing the "kick the can" approach?

carbonmutant's picture

My experience with the Dallas and Austin Market over the last 12 months is that the Banks are no longer in the lending business. They're in the investment business and lending to residential buyers has more risk than they are willing to assume. They simply don't trust the appraised value of the collateral.

And in most markets the banks are focused on cash deals.

Anonymous's picture

don't worry there is a $100B line from Treasury...or has that been cut yet..