Even The FDIC Admits It's Not Ready For The Next Banking Crisis

Tyler Durden's picture

Submitted by Simon Black via Sovereign Man blog,

We have entered a most bizarre and unprecedented age in the financial system where there’s risk in just about everything that we do.

Indiscriminately investing in stocks at their all-time highs carries enormous risk, and financial history is unkind to people who fail to learn that lesson.

To buy bonds, on the other hand, means loaning money to insolvent governments at rates that are either below inflation or even outright negative.

Real estate markets in many parts of the world are right back at the frothy highs they experienced prior to the last financial crisis.

And if Pablo Picasso is any indicator, even an asset class like fine art is booming at all-time highs.

The normal approach in an era of so much financial risk would be to do nothing; gather your capital, sit on the sidelines, and wait for a crash.

Yet now the act of doing nothing and holding your money in a bank also brings an orgy of risk.

Most banks in the West are extremely illiquid, and are in many cases insolvent. But few people ever give thought to the financial condition of their bank.

In the United States, for example, people are indoctrinated almost from birth that banks are safe and somehow infallible.

Banks inter themselves in the most expensive locations with ornate lobbies and cornerstones that proudly inform the world they are backed by the full faith and credit of the United States government.

But that barely counts given that the US government is itself insolvent with a negative equity of minus $17.7 trillion according to their own financial statements.

Then there’s the FDIC, which insures deposits in the US banking system.

In its 2014 annual report the FDIC itself points out that its whole insurance fund constitutes just a fraction of a percent of all deposits in the system, and that its ‘reserve ratio’ is just 1.01%.

With a reserve so low, the FDIC not only lacks any meaningful teeth to insure the system, but it actually fails to meet the minimum level that is required by law.

This quasi-government regulatory agency fails to meet the government regulatory requirement and is in worse shape than the banks that it’s supposed to insure.

Perhaps even more important, the FDIC doesn’t expect to meet this statutory minimum until at least 2020.

To me this begs an obvious question. Do we really have another 5+ years before there’s another major crisis in the US banking system?

Most US banks today are just as illiquid as they were before the crisis, holding just a tiny portion of deposits in reserve and gambling away the rest.

And the most popular place that they invest their customers’ deposits today is exactly the same as in 2008: mortgage-backed securities.

Curiously, the FDIC’s reserves today are actually far lower than they were prior to the crisis.

On top of that, back then the FDIC only insured $100,000 worth of your deposits per financial institution. Now it’s $250,000.

So essentially the FDIC is on the hook to pay more than twice as much money to depositors. Yet it has a lower reserve to support an even larger system that is up to the same precarious practices as before.

This doesn’t exactly inspire confidence.

But don’t take my word for it.

In a recent announcement, the FDIC tells us how banks have grown far larger and even more complex since 2008, and that “[s]uch trends have not only continued, they accelerated as a result of the crisis.”

 

The FDIC goes on to suggest that its current tools and business model are “not sufficient to mitigate the complexities of large institution failures.”

 

But even though they’re not equipped to handle it, they’re not entirely sure what to do.

 

That’s why the FDIC is “seeking comment on what additional regulatory action should be taken. . .”

 

In other words, they’re asking the public for suggestions about how to handle a major US bank failure. Hardly encouraging.

Bottom line– your bank is potentially in the same boat it was in 2008. The FDIC is worse off. And the federal government is totally insolvent.

These are not risks you should assume away. Give great care to the decision of where you hold your savings.

And definitely look abroad.

There’s an entire laundry list of offshore banks that are in great financial condition and located in strong, stable foreign countries.

It’s hard to imagine that you’ll be worse off for holding a portion of your savings in a country with no debt at a healthy bank that’s 5x more capitalized and 10x more liquid than where you currently bank.

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Stoploss's picture

It parks the money in the garage...

TBT or not TBT's picture

It bans cash transactions.  It bans cash withdrawals.  It opens the safety deposit boxes and takes the precious.  It nationalizes the 401Ks and IRAs.  

Esso's picture

Chase sent out a notice that you're not allowed to keep cash or bullion their safe deposit boxes.

Criminy, who'd be dumb enough to do that anyway? I guess Jamie doesn't want his head on a pike when the inevitable happens.

IridiumRebel's picture

PUT THE FUCKIN GOLD UNDER THE MATTRESS!

TBT or not TBT's picture

It geocaches the Precious.  

zerocash's picture

There’s an entire laundry list of offshore banks that are in great financial condition and located in strong, stable foreign countries.

Five letters: FATCA

Cloud9.5's picture

Nothing a few mouse clicks from the Fed won't solve.  Real question is when does the currency implode?

BandGap's picture

Like a dying star that first goes red, expands and then collapses into a black hole. That kind of implosion?

NoDebt's picture

Agreed.  Shoving a few tens of billions at the FDIC (remember, only $250K per person per bank, not per account) will be small potatos compared to the vast sums that will be shoved at the TBTF banks again the next time TSHTF.

Liberty2012's picture

There has always been risk in everything we do. The bizarre part was people being conned into believing that wasn't true - that, somehow, risk could be eliminated or contained. It cannot. Not in any manner at all. If you think you have found a way to reduce risk, then you are failing to recognize the risk you are choosing to take.

A Lunatic's picture

I hold my savings in my hand.......

CHC's picture
CHC (not verified) May 14, 2015 4:31 PM

We are in the matrix.  This entire system is one massive illusion. 

boattrash's picture

FFS, the FDIC has never (in recent history) been ready for a crisis. It's just another "worthless as tits on a boar hog Gov agency".

I checked out their books in '08, and they didn't have the funds to cover my little home-owned bank, had it gone tits-up!

StychoKiller's picture

[quote]

“seeking comment on what additional regulatory action should be taken. . .” [/quote]

Break up JPM, Wells-Fargo, BofA, CitiGroup & Goldman OR

DROP FDIC coverage for these ne'er-do-wells!

Someone has to do something truly radical to draw national attention to what these Buttholes are doing!

Weaponized Innocense's picture
Weaponized Innocense (not verified) May 14, 2015 4:32 PM

On shore I recommend USAA who insures much more than a measly 1/4 of a million.
U have to have ancestors or family who have served in military though....
Or it used to be that way... Or if u have worked for them.

Weaponized Innocense's picture
Weaponized Innocense (not verified) Weaponized Innocense May 14, 2015 4:35 PM

It will remain solvent when all goes to hell with some other banks.

But it won't hide ur money from the gov if they come to steal it all ... Not that they won't go for off shore shit.

TeethVillage88s's picture

- 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion

TeethVillage88s's picture

Just a little Cut and paste from some budget work I did:

- Like $56 Billion in FDIC last I checked.

- Big Concern- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999 = $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011 = $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)

- Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion. (Risky)
- 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)
- 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion
http://research.stlouisfed.org/fred2/series/BKIFDCA641N

Yen Cross's picture

  First of all the FDIC is a complete farce... Secondly, who would hold more than the insured requirement in a bank? (from a business standpoint)

 Large corps self insure, start a bank. Smaller companies, outside insure THEIR CASH. 

 FRB: Reserve Requirements

 Remember, banks don't have balance sheets until they lend.

kchrisc's picture

Ah, the FDIC. The "scorpion" to the depositors' "frog" of the "Frog and the Scorpion" fable.

"Yes, yes, take me to the other side of the bankster river. I will not sting you. We will not drown together."

Liberty is a demand. Tyranny is submission..

MASTER OF UNIVERSE's picture

The FDIC has no clue because the FDIC does not understand basic math

or Quantum Behavioural Economics, Quantum Physics, or Quantum Mechanics, let alone Mandelbrot Sets, or the genesis of the Bear Stearns

bear raid that literally triggered a Mandelbrot Set of Quantum Behavioural Economic destruction in the first hour of short selling on their trading post 11:ooam onwards. By 12:00pm the whole of the United States of America was set for complete bankruptcy due to the knock on effects of what transpired in that first hour of the bear raid.

Lehman Bros. was directly in the cross-hairs of death simply by definition of being over-leveraged at that juncture. This is why Paulson was so hot/cold with Fuld post Bear Stearns and pre-Lehman Chapter 11. Both Paulson and Fuld knew that Lehman Bros. could not withstand any sort of stress testing due to Fuld's penchant for biting off more than he could chew with McCallister Ranch in Bakersfield California. In retrospect, would you appreciate being a new homeowner in Barkersfield California right this very second?

 

HINT: What is California not going to have for the next 1000 years?

fremannx's picture

This article from 2014 explains what happens  when the FDIC shows up to shudown a bank. This process will only work until the money runs out, though. 

http://www.globaldeflationnews.com/how-safe-is-your-bank-you-wont-know-u...

blindman's picture

the fdic can cover at least .o2% of the
potential banking losses. (i made that
statistical percentage up just now but
let me guess, it is very close to "accurate",
whatever that might mean.) so, i seem to remember
a chart from a few years ago that communicated
this basic idea which pointed out the entire
fraudulent exploitation and regulatory capture,
systemically built into
contemporary banking/finance and governmental practices, in
flagrant disregard for "economic accounting" and personal
and local sovereignty,
such quaint and irrelevant terms, persons and people. no?
.
living the dream .....mama tried.

Yen Cross's picture

 WINNER ~WINNER, chicken dinner. Blindman gets it.  The FDIC was designed to cover losses based on reserve ratios from the 1950's.

 Credit(repackaged loans, consumer debt) didn't EXIST, and therefore the FDIC is about as efficient as Social Security.

TeethVillage88s's picture

Wow. Bears some investigatin'

ersatz007's picture

But I thought our leaders reformed the system after the 2008 crash? You mean to say they didn't???

pupdog1's picture

These FDIC cocksuckers let the banks move trillions in toxic derivative filth onto the FDIC's coverage, and got them priority status in bankruptcy, so

 

THERE IS NO FDIC FOR THE AMERICAN BANKING CONSUMER.

GET IT ?????

blindman's picture

14 MAY 2015
Gold Daily and Silver Weekly Charts - The Money Shot - To Say 'No'
"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus, Agricola
.
http://jessescrossroadscafe.blogspot.com/
.
.."This overreach for profit and power of the corporatist state overseas and at home is the money shot. This is the reason that we are engaging in discretionary wars, and secret trade treaties, and paper asset bubbles, and rigging markets, so that we can continue to enrich the one percent through an economic policy of plunder." ...jca

blindman's picture

http://www.maxkeiser.com/2015/05/kr757-keiser-report-modern-slave-masters/
[KR757] Keiser Report: Modern Slave Masters
Posted on May 14, 2015 by Stacy Herbert

gregga777's picture

Want to know how to introduce fear of risk back into the system?

Kill dozens of the guilty f***s and families from the 2007-2008 financial crisis. Then distribute leaflets on Wall Street and other TBTF locations, and other places infected by the parasite classes, saying this is what is in store for you and your families after the next crisis.

No. Why wait for the next crisis? You are right. Do them all now!

orangegeek's picture

There won't be any insurance on deposits.

graspAU's picture

“A deposit insurance system is like a nuclear power plant. If you build it without safety precautions, you know it’s going to blow you off the face of the earth. And even if you do, you can’t be sure it won’t.”

—L. William Seidman, Chairman, FDIC

danster82's picture

The FDIC is not supposed to insure anything, its supposed to create a certain perception, it has done that well so it serves its purpose.

StychoKiller's picture

Meh, Ph-neutral eyewash ain't gonna do diddley when someone pours H2SO4 all over everyone!

Crocodile's picture

Who cares?  Really, who really cares?