FDIC "Problem Banks" Reach New Highs, Fund Still Broke, Bair Still Blind

Hold tight, Sheila Bair, your bumpy ride is about to get WAY bumpier!


May 27 (Bloomberg) -- U.S. “problem” banks climbed 21 percent to the highest total in 15 years in the first quarter, and provisions set aside for loan losses weighed on industry earnings, the Federal Deposit Insurance Corp. said.

The FDIC classified 305 banks with $220 billion in assets as “problem” lenders as of March 31, an increase from 252 with the $159 billion in assets in the fourth quarter. Assets at “problem” banks were the highest since 1993, the agency said today, without naming any lenders. The FDIC said its insurance fund slumped 25 percent to the lowest level since 1993.

“The first quarter results are telling us that the banking industry still faces tremendous challenges,” FDIC Chairman Sheila Bair said today at a briefing in Washington. “Going forward, asset quality remains a major concern.”

And Sheila Bair wins the obvious award for today. Congrats for solving that particular puzzle, Sherlock!

So now the community banks are paying the price, literally, for the FDIC's epic tunnel vision - in case you missed it, the "fund" didn't collect insurance premiums for ten full years thinking the good times would last forever.

Via the Journal Star out of Lincoln, NE:

In 2007, West Gate Bank paid no premiums to the Federal Deposit Insurance Corp.

In 2008, the Lincoln bank paid $160,000.

This year, with a special emergency assessment, which was finalized on Friday, President Carl Sjulin is estimating West Gate’s premium to be around $530,000.

“It’s a burden,” Sjulin said.

It’s also bitter medicine for banks that did little or nothing destructive to contribute to the unhealthy state of the nation’s banking industry.

“It’s a very difficult pill to swallow for Nebraska bankers,” Sjulin said. “We didn’t have anything to do with it, but we’re paying for it.”

That’s a sentiment expressed by community bankers around the country, as their FDIC premiums skyrocket.

The FDIC apparently heard their complaints, as it announced Friday that it would adopt a new system of special fees that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.

“There will be some shifting of the burden (to major banks). The shift is not huge to them. We’re asking them to pay more,” FDIC Chairwoman Sheila Bair said.

"Shifting" - she says it like balancing capital requirements, increased insurance fees, and quarantined radioactive balance sheets is somehow just like a pair of sweaty balls that need to be adjusted to the left a bit. What?

Dick the little guys, write the big guys a check, and never, ever take your eyes off the shell. Yeah, now that sounds like a plan.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.