The FDIC is In the Red, "But Let's Get Those Loans Going" Says the Care Bair
The FDIC posted a 3rd quarter loss, gee, that's a surprise to whom? Kill the thing already, that's the only way this particular problem will find a solution. A $500 billion line of "credit" from the Treasury isn't going to do it, nor is pawning off bad baby banks on the future Too Big to Fail.
The fund used to safeguard U.S. bank deposits dropped to a negative balance of $8.2 billion in the third quarter, the first shortfall since 1992, the Federal Deposit Insurance Corp said on Tuesday.
Although the FDIC still has $23.3 billion in cash resources to handle bank failures, its fund balance dipped to a negative balance due to an additional $21.7 billion the FDIC set aside in the quarter for future bank failures.
At the end of the second quarter, the FDIC's insurance fund had stood at $10.4 billion.
The number of banks on the FDIC's "problem list" rose 33 percent during the third quarter to 552, the highest level since 1993.
The FDIC will soon get an infusion of $45 billion through a plan to have the banking industry prepay three years of assessments.
While those additional funds will boost the cash on hand, accounting rules will stop the FDIC from including all the money immediately in the fund balance.
The depleted insurance fund and the sharp rise in troubled institutions reflects the continued weight of bad loans on banks' balance sheets.
"Today's report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance," FDIC Chairman Sheila Bair told reporters in a briefing.
The industry as a whole managed to post a profit for the quarter of $2.8 billion due to growth in operating revenues and a rebound in securities values after a $4.3 billion loss last quarter.
But she said the earnings improvement was counterbalanced by the largest decline in loan balances on record, indicating that banks are still being tight-fisted with credit.
"We need to see banks making more loans to their business customers," Bair said.
In absolutely related news, the FDIC "problem bank" list is now up to 522, up from 416 at the end of the 2nd quarter. And then there's this (thanks, WSJ):
6) The quarterly decline in loan balances was the largest on record. Total loan and lease balances fell by $210.4 billion in the third quarter, the most since the FDIC began reporting the data in 1984.
And what are we going to do with TGLP anyway? Zero Hedge hits it and leaves us this nugget of wisdom:
[I]t goes without saying, that cheap credit will only continue up to such a point that the Fed decides it is time to commence tightening the trillions in excess liquidity. Then again, the probability of that happening in our lifetimes is very, very slim, as the Fed is fully aware that should this final bubble pop, there will be no coming back.
Everything is under control, nothing to worry about here. The banks will just vaporize all that cash that the Fed is sitting on for them and maybe we can get a little FASB fairy to come bop their books with a dusting of accounting magic and viola, problem solved.
Right? Sheila? Anybody?
P.S. We are up to 124 failed banks for the year with no end in sight. That ought to be reassuring when considering "deposit insurance" or, more appropriately, the lack thereof.