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One Of Three Down; Is The FDIC Still Solvent?
Here we go!
Colonial, Alabama’s second-largest bank, is being closed by regulators today, the person said, becoming the largest U.S. bank failure of 2009 after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans.
The FDIC usually waits until the close of business Friday; they must have had a slight problem with withdrawals......
Left unsaid is what's going to happen to the FDIC's deposit insurance fund on this one - my guess is that it will be ugly, as these guys were up to their necks in Florida on development projects that went bad. The "value" of that paper may be very close to zero; if the FDIC avoids doing one of their 40% loss deals I will be quite surprised.
A 40% loss on this one would, if my math is right, kill the rest of their insurance fund plus quite a bit and put the FDIC in the position of immediately needing to go hit up Treasury for more money.
...
BB&T Said to Be Taking Colonial in FDIC-Brokered Deal (Update1)
By David Mildenberg
Aug. 14 (Bloomberg) -- BB&T Corp. is taking over Colonial BancGroup Inc., the Alabama lender whose collapse would mark the biggest U.S. bank failure this year, a person familiar with the matter said.
Colonial, Alabama’s second-largest bank, will be turned over to BB&T in a deal brokered by the Federal Deposit Insurance Corp. as soon as today, said the person, who declined to be identified because the agreement wasn’t public. Montgomery-based Colonial is being shuttered by regulators after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans.
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OTS Closes Pittsburgh's Dwelling House;73rd Bank To Shut Down
August 14, 2009: 05:30 PM ET
WASHINGTON -(Dow Jones)- PNC Bank acquired the deposits and some assets of Dwelling House Savings and Loan Association on Friday, after the latter became the 73rd U.S. bank to fail this year.
The Federal Deposit Insurance Corp. said that Pittsburgh, Pa.-based Dwelling House was closed by the Office of Thrift Supervision. The FDIC then entered into a purchase and assumption agreement with PNC to acquire approximately $13.8 million in deposits from Dwelling House, as well as $3 million in the failed bank's assets.
The FDIC estimates that the failure, the 98th since the beginning of 2008, will cost the federal deposit insurance fund $6.8 million.
-By Michael R. Crittenden, Dow Jones Newswire
www.fdic.gov...
The FDIC and BB&T entered into a loss-share transaction on approximately $15 billion of Colonial Bank's assets. BB&T will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement is also expected to minimize the disruptions for loan customers.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $2.8 billion. BB&T's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Colonial Bank is the 74th FDIC-insured institution to fail in the nation this year, and the first in Alabama. The last FDIC-insured institution to be closed in the state was Birmingham FSB, Birmingham, on August 21, 1992.
Fortunately BB&T (whoever they are) are taking over Colonial Bank
Financial Crisis of 2008 and 2009
en.wikipedia.org...
2009
As of July 31, 2009, seventy-two banks became insolvent.[12] This seven month tally surpasses the 50 banks that were seized in all of 1993, but is still much smaller than the number of failed banking institutions in 1992, 1991, and 1990.[13] On July 31, 2009, the FDIC launched its Legacy Loans Program (LLP). This initiative is aimed at helping banks rid their balance sheets of toxic assets so they can raise new capital and increase lending.[14]
On August 14, 2009, Bloomberg reported that more than 150 publicly traded U.S. lenders had nonperforming loans above 5% of their total holdings. This is important because former regulators say that this is the level that can wipe out a bank's equity and threaten its survival. While this ratio doesn't always lead to bank failures if the banks in question have raised additional capital and have properly established reserves for the bad debt, it is an important indicator for future FDIC activity.[15]
Friday Jul 24 FDIC Losses On Failed Banks Now Exceed Deposit Insurance Fund Balance| Problem Bank List
www.topix.com...
The total estimated cost to the FDIC for the 64 bank closing that have occurred this year now total approximately $13.5 billion dollars. The balance in the Deposit Insurance Fund at March 31, 2009 per the FDIC amounted to $13 billion.
More at Link...
7 Failed Banks For July 24, 2009 - FDIC Losses Mount
problembanklist.com...
Banking Failures - 64 And Counting
2009 has now seen a total of 39 more failed banks than occurred for all of 2008. The latest banking closures by the FDIC bring total banking failures for 2009 to 64. The six banks closed in Georgia this week were all bank subsidiaries of Security Bank Corp, Macon, Georgia. The latest Georgia banking failures bring the total of failed banks in Georgia for 2009 to 16 banks. Georgia now accounts for 25% of all banking failures in the United States this year.
Originally posted by Dbriefed
Is the FDIC still solvent?
How much cash does the FDIC still have?
While losses on home mortgages may be leveling off, delinquencies on commercial real estate loans remain a hot spot of potential trouble, FDIC officials say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks hold large numbers of them.
The number of banks on the FDIC's list of problem institutions leaped to 305 in the first quarter - the highest number since 1994 during the savings and loan crisis - from 252 in the fourth quarter. The FDIC expects U.S. bank failures to cost the insurance fund around $70 billion through 2013.
AUGUST 18, 2009
Failed Banks Weighing on FDIC
Amounts Tapped by Agency Reminiscent of Savings-and-Loan Crisis
By JOE BEL BRUNO
Banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry's last crisis, a looming problem for the government agency charged with insuring deposits.
At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency's deposit-insurance fund is expected by the Federal Deposit Insurance Corp. to be about 50% of their assets.
The biggest hit on a percentage basis is coming from Community Bank of Nevada, a Las Vegas bank with $1.52 billion in assets and an estimated cost of $781.5 million. The failure of Colonial Bank, a unit of Colonial BancGroup Inc. that was sold to BB&T Corp., will cost $2.8 billion, or 11% of the Montgomery, Ala., bank's assets.
For the 102 banks that have collapsed in the past two years, the FDIC's estimated cost averaged 25% of assets. That is up from the 19% rate between 1989 and 1995, when 747 financial institutions were closed by regulators, according to the FDIC.
The agency's insurance fund already has dipped to $13 billion, with more than 300 battered banks and thrifts still on an undisclosed FDIC list of problem institutions.
One problem is that so many banks took risks when the economy was booming, and are seeing their capital dissipate with alarming speed.
"Compared to the savings-and-loan crisis, banks these days have gotten much bigger and the economy has gotten much bigger," said Bob Patten, an analyst at Morgan Keegan & Co. "This crisis won't eclipse the last one in size, but the costs to the FDIC are showing the amount of leverage they really had on their books."
Regulators also have been blamed for not taking quick enough action and for allowing zombie banks to limp along. Inspectors general at the Treasury Department and FDIC, which serve as watchdogs, have issued more than a dozen reports that conclude regulators dithered while banks they oversaw plowed ahead with rapid and unsteady growth.
"When you get these failing banks, they are much more like a fresh-caught fish than a fine wine. They don't get better with age and the losses keep piling up." said Bert Ely, a longtime banking-industry consultant.
Integrity Bank, of Alpharetta, Ga., was permitted to keep luring deposits paying unusually high interest rates for more than two years after examiners noted deficiencies in its loan underwriting, according to the FDIC's inspector general. Integrity failed last year, costing the FDIC $295 million.
The FDIC's response to the report about Integrity noted that "greater concern for Integrity's loan administration and underwriting weakness identified could have led to earlier supervisory action."
As the number of bank failures escalates, FDIC officials have been trying to find investors and buyers for terminally ill financial institutions, increasingly by agreeing to shield acquirers from certain losses on assets of the failed bank.
The FDIC and BB&T entered into a loss-share transaction on approximately $15 billion of the $22 billion in Colonial assets bought by the Winston-Salem, N.C., bank. FDIC Chairman Sheila C. Bair said in a statement that losses from Friday's failures "are lower than had been projected."
Originally posted by Dbriefed
A 40% loss on this one would, if my math is right, kill the rest of their insurance fund plus quite a bit and put the FDIC in the position of immediately needing to go hit up Treasury for more money.
market-ticker.denninger.net...
The following is an excerpt from an article, The Mythical FDIC Fund, by William M. Isaac, former Chairman of the FDIC. It should be titled:
WHAT BILL FOUND OUT WHEN HE WENT TO WASHINGTON DC
8/27/08
THE MYTHICAL FDIC FUND
By William M. Isaac
William Isaac, former Chairman of the Federal Deposit Insurance Corporation, (FDIC)
When I became Chairman of the FDIC in 1981, the FDIC’s financial statement showed a balance at the U.S. Treasury of some $11 billion. I decided it would be a real treat to see all of that money, so I placed a call to Treasury Secretary Don Regan:
Isaac: Don, I’d like to come over to look at the money.
Regan: What money?
Isaac: You know ... the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that’s a bit of a problem.
Isaac: I know you’re busy. I don’t need to do it right away.
Regan: Well ... it’s not a question of timing ... I don’t know quite how to put this, but we don’t have the money.
Isaac: Right ... ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has been turning the money over to the Treasury, and the Treasury has been spending it on missiles, school lunches, water projects, and the like. The money's gone.
Isaac: But it says right here on this financial statement that we have over $11 billion at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay interest on it.
Isaac: I know this might sound pretty far-fetched, but what would happen if we should need a few billion to handle a bank failure?
Regan: That’s easy — we’d go right out and borrow it. You’d have the money in no time ... same day service most days.
Isaac: Let me see if I’ve got this straight. The money the banks thought they were storing up for the past half century — sort of saving it for a rainy day — is gone. If a storm begins brewing and we need the money, Treasury will have to borrow it. Is that about it?
Regan: Yep.
Isaac: Just one more thing, while I’ve got you. Why do we bother pretending there’s a fund?
Regan: I’m sorry, Bill, but the President’s on the other line. I’ll have to get back to you on that.
Gold and Why Gold Now - Full Text
There was a series of excellent videos about how money works and where it comes from. Two places make money, Treasury (writes checks backed only by future tax revenue) and banks (who create leveraged loans).
Originally posted by crimvelvet
I have a stupid question.
I understand how fractional banking works. The bank has $10 in assets and the Fed allow the bank to loan out $100. The bank then collects say 10% interest on the loan so it recoups its actual assets in a year but has on its books $90 worth of "fairy dust" From what I understand there was some slight of hand so the actual amount of assets is more like 3% and not 10%
Can someone explain how a business that is collecting interest on 90% to 97% "fairy dust" can manage to become insolvent?
Doesn't that mean some where around 9 out of 10 loans were bad?
Bad banks -- They're baaack!
Seeking to lure more buyers at a time of intense distress, the FDIC has dusted off the oft-touted, but rarely used, plan of setting up bad banks. Will it work this time?
By Colin Barr, senior writer
August 18, 2009: 1:28 PM ET
NEW YORK (Fortune) -- Facing mounting bank failures, regulators are putting a new twist on a familiar idea: splitting a bank's good assets from the bad ones.
The Federal Deposit Insurance Corp. said last month it would consider splitting the toxic assets of a failed bank from its more valuable parts, such as deposits and loans that aren't going sour.
The goal is to help the FDIC, facing the biggest wave of bank failures in almost two decades, find new buyers for the remains of failed banks while limiting losses on its depleted insurance fund.
"This helps us widen the net in marketing bank assets," said FDIC spokesman David Barr. "When you have the inventory we have, you look for different ways to try to sell it."
Thanks to the ill effects of the housing bubble, the FDIC certainly has the inventory. Barr said the FDIC had $26.5 billion in assets in liquidation at the end of July, with two-thirds of that in mortgages and real estate-backed securities.
Though the FDIC says it's having success in finding buyers for much of these assets, it is also trying to find ways to move inventory at better prices. In one program, the agency will provide financing to acquirers of troubled loans.
"There has been little activity in sales of whole loans," said Hal Reichwald, a lawyer at Manatt Phelps & Phillips in Los Angeles who represents investors. "The danger is you could end up with a bottleneck in the distressed asset markets."
Wave of failures
When a bank is on the verge of collapse, the FDIC typically tries to find buyers for the entire bank at once, often with the help of deals in which the agency shares losses on the failed bank's bad loans.
Friday's failure of Alabama's Colonial BancGroup is one such deal: buyer BB&T (BBT, Fortune 500) took on most of Colonial's $25 billion in assets, with it and the FDIC sharing losses on two-thirds of that pool. Some $3 billion of assets will remain with the FDIC for later disposition, the agency said in a statement Friday.
But with banks failing at a clip not seen since the late stages of the savings and loan crisis in the early 1990s, finding a buyer for the whole bank isn't always possible.
So far in 2009, 77 banks have failed -- more than triple the 2008 toll. The FDIC has taken on some assets in many of those deals, and it has failed to find takers of any kind for six banks -- including the giant correspondent bank Silverton, which went under in April with $4.1 billion in assets.
In a more recent case, the FDIC couldn't find a buyer for a small bank in Georgia, even after contacting 300 potential buyers.
The wave of failures and resulting soft demand have left the FDIC weighing the benefits of attracting new capital to shore up failed banks against the risks of allowing private equity investors, which typically use a lot of debt to finance deals, to become more active buyers.
Last November, the FDIC issued rules expanding the field of bidders for troubled bank assets. But last month it proposed holding private investors to higher capital standards and imposing a waiting period that would keep buyout firms from "flipping" banks.
"The question is real equity vs. borrowed equity," said James Angel, a finance professor at Georgetown University. "The temptation is to lever yourself up to your eyeballs, and that's something the FDIC has to be on guard against."
How the agency decides to treat private equity buyers could go a long way toward deciding whether the bad-bank plan succeeds.
That said, the FDIC's approach marks the first time during the financial crisis that the bad-bank concept has been considered as something other than a Hail Mary pass.
Lehman Brothers proposed a split last September to rid itself of its troubled commercial real estate assets, in a desperate bid to restore market confidence. Investors rejected the plan as unworkable and the firm filed for bankruptcy just days later.
Since then, the government has toyed with variations on good-bank/bad-bank plans for healthy institutions at least twice. The first was former Treasury Secretary Hank Paulson's original plan for the Troubled Asset Relief Program. Then there was discussion of a so-called aggregator bank by the Obama administration.
But those plans foundered due to questions of how the bad assets would be valued and how the already capital-constrained banks getting rid of those assets would make up for the resulting losses.
That isn't a problem for the FDIC. As the receiver of failed banks, it takes possession of the assets itself.
Still, bankers expect to continue struggling with the issue of how much to pay for bad assets for some time -- even though a robust bank stock rally over the past five months suggests investors are less worried about toxic assets than they once were.
"There are a ton of toxic assets out there right now," said Norman Skalicky, CEO of Stearns Bank, a St. Cloud, Minn.-based lender that has bought several banks and a $730 million loan portfolio from the FDIC over the past year. "But then, they say there are no toxic assets -- just toxic prices."
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