US Deposits In Perspective: $25 Billion In Insurance, $9,283 Billion In Deposits; $297,514 Billion In Derivatives

Earlier today, the American Banking Association reminded Americans that there is absolutely nothing to worry about when it comes to the sanctity of US deposits: after all there is a whopping $25 billion in the FDIC insurance fund which means "insured depositors are safe and their deposits are protected by a strong FDIC fund....The FDIC insurance fund has over $25 billion in reserves and the banking industry " Obviously supposedly "insured" depositors in Cyprus also though there was nothing to worry about, until they woke up on Saturday with a haircut between 6.75% and 9.9% on their money in the bank. Sadly, it may be the case that the ABA is being just modestly disingenuous in its statement. Why? Instead of explaining it in detail, here is a snapshot that does more than thousands of words ever could.

Chart drawn to scale.

The $25 billion in touted deposit insurance is supposed to preserve and protect (granted not in their entirety) some $9,283 billion in total US deposits. A far bigger problem, however, is when one considers the "asset" side of the US banks' ledger: remember deposits are unsecured liabilities. And for US banks, sadly, over the counter derivatives represent the vast majority of "off the books" assets. According to the latest OCC quarterly report, the total derivative notional outstanding of the Top 25 holding companies is $297,514 billion, or nearly $300 trillion. In other words there are 32 times more notional derivatives than there are total deposits, while the ratio of gross derivatives to deposit insurance is a concerning 11,900-to-1.

And with that, we hand it back to the ABA to comfort all US depositors that Cyprus could never possibly happen in the US.

Source: OCC, H.8


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