Tuesday, August 26, 2008

Banks In Trouble and the FDIC

Looks like the FDIC is working on a new business plan. Apparently, closing small banks one at a time is inefficient, slow, and probably not adequate given this unofficial list of problem banks. In truth, it is probable that a big bank or two (or three) is being lined up for failure, and Sheila Bair realizes that they don't have the money.

So what will the enterprising FDIC do? Why, borrow money from the treasury, if it gets its way:
WSJ.com: "Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures.

Ms. Bair said the borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank. The borrowed money would be repaid once the assets of that failed bank are sold.

The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered."
The NYT tells us that she is certainly expecting the banking crisis to get worse. They mention that 117 banks are on the troubled list, with assets just under $78 billion.

Do you know that $78B / 117 = $666 million per bank on average? If that isn't an obvious sign of what's to come, I don't know what is.

1 comment:

Anonymous said...

You mean Sheila's presence on bubblevision this afternoon was misleading? Say it isn't so!