FDIC fund falls into red, Bair urges lending

[Joanne98]

Source: Reuters

WASHINGTON (Reuters) - 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 veered into the red 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.



Read more: http://www.reuters.com/article/ousivMolt/idUSTRE5AN36P20091124

[dixiegrrrrl]

1. If the FDIC had closed banks per the required laws,

FDIC would NOT have been spending millions to buy the bad assets at the much delayed closings.
Instead, the FDIC failed to act when it was supposed to, at the first sign of a bank's distress,
then had to pay billions down the road for the bank's losses.

Oh weel, just one of the many many many ways the banksters have stolen our money.

[FBaggins]

3. How would closing them earlier have made a difference?

It isn't as if they were making tons of NEW bad loans (they didn't have the capital)... they just continued to lose money on the OLD bad loans.

I'm also unaware of which law requires a bank to be closed at the "first sign of distress"?

[dixiegrrrrl]

4. The law is here: see below my comments.

And this is the key part:
The appropriate Federal banking agency shall, not later than 90 days after an insured depository institution becomes critically undercapitalized—
This law was passed after the Savings and Loan ponzi crash of the 1980's...in which G.W. Bush's younger brother Neill gained notoriety, and where McCain was part of the infamous Keating 5 in that fraud.
So a law was passed, that the FDIC had to ACT promptly when banks were found to be making improper loans.
If the FDIC had cracked down promptly when the first "liar loans" were made,
( that is, when the banks were loaning out many times more than they had reserves to back up loan faliures)
the whole mortgage failure mess might have been of a manageable size.
( also see: http://www.pbs.org/moyers/journal/04032009/transcript1.html, for a discussion of how regulators practiced fraud in letting the financial system collapse)


****
The Prompt Corrective Action Law is codified as Title 12 of the US Code, and as currently published by the US Government reflects the laws passed by Congress as of Jan. 3, 2007. Here are some parts of it.

TITLE 12 > CHAPTER 16 > § 1831o

§ 1831o. Prompt corrective action

(d) Provisions applicable to all institutions
(2) Management fees restricted
An insured depository institution shall pay no management fee to any person having control of that institution if, after making the payment, the institution would be undercapitalized.

SNIP

(3) Conservatorship, receivership, or other action required
(A) In general
The appropriate Federal banking agency shall, not later than 90 days after an insured depository institution becomes critically undercapitalized—
(i) appoint a receiver (or, with the concurrence of the Corporation, a conservator) for the institution; or
(ii) take such other action as the agency determines, with the concurrence of the Corporation, would better achieve the purpose of this section, after documenting why the action would better achieve that purpose.

[FBaggins]

5. Does the law say somewhere

that WE get to decide what constituted "critically undercapitalized"?

I can answer the question. No. It gives the regulatory agency the ability to specify what constituted "critically undercapitalized".

There's also the issue of accounting. They can move a bank from one category to another by waving a magic wand and telling them to account for a given asset in a different way.

They don't give out bank names (for obvious reasons), but they do report how many banks fall into that category each quarter. Are you saying that a given bank fell into that bucket a year ago but was only closed recently?

Regardless... I still don't see a reason to state that if they HAD been closed earlier, there would have been fewer losses. You would have had to close them long before there WERE losses in order to make a difference.

[notesdev]

2. Bair must go

She is a complete and utter failure at the very definition of her job - enforcing the laws. She had a statutory duty to see that each and every bank that went below required capital levels was taken over and closed.

It is only because she delayed in doing her job that the FDIC took any losses at all.

Now, there is effectively no more FDIC.

Where's that $8.2 billion going to come from? And what happens when the next bank goes under?

[FarCenter]

6. She is assessing the banks the next 3 years of insurance fees in advance

Which will push even more of them into the undercapitalized state.

She has been way too late to close the bad banks.

[notesdev]

10. And the money comes from TARP in one big circle

I wanted to add one more word to that title but we could have a family audience

[AllentownJake]

7. President Obama can't fire her

Even if he wanted to, she gets a five year term. Her term started in 2006

[dixiegrrrrl]

8. That's an important point. Thanks.

[roamer65]

9. Time for more Federal Reserve funny money.

Just a few keystrokes and the FDIC will be well funded again.

[notesdev]

11. The problem with that

nobody got a good answer to the question, "what if China pulls the plug?"