As you probably know, the FDIC is proposing that large banks pay the FDIC guarantee fee in advance for 3 years worth of insurance (through 2012). This is not that surprising given the looming hole in the FDIC’s insurance reserve fund. The agency is preparing for significantly more bank failures in the future and needs to replenish funding. Here are some eye-opening stats from a report releases by Institutional Risk Analytics, a firm which specializes in providing research and analytics covering the banking sector to governments and institutional investors.
- IRA gives 2,254 banks an “F” rating based on their modeling of FDIC provided data on their banks
- These 2,254 “F” rated banks represent a 54% increase over the number of “F” rated banks a year ago and represent 27% of the banks that they cover in their analysis.
- Insured assets of these “F” rated banks total $4.46 trillion (yes, that’s a “t”)
Without going through their assumptions, the implications are that if only ½ of only the “F” rated banks fail, given the loss rates experienced during this cycle, the cost to the FDIC insurance fund to cover these failures could total $400-500 billion! How much is the FDIC’s reserve today? About $10 billion. This is a staggering hole to fill, but the FDIC does have the ability to draw upon their $100 billion line of credit with the Treasury and through 2010 will have access to funding totally $500 billion. Still, the borrowing does have to be paid back, and depositors are, or will be, picking up the tab. Whether “F” is for Failure or “F” stands for Funding, the FDIC will have plenty of both on their hands for the foreseeable future. As of this past Friday, we’re up to 98 failures this year. There’s a lot more to come.
