We highlight JP Morgan Chase & Co., Inc. (
JPM), BankUnited Financial Corp. (BKUNA), Wells Fargo & Co. (
WFC) and Bank of America Corp. (
BAC).
As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace.
At the end of the first quarter there were 305 "problem institutions" with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.
The first graph (from
http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco.
However, don't worry about losing the money in your checking account if your bank goes under. Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP (Public-Private Investment Program). The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit.
The prospect of the FDIC paying back that loan anytime soon from increased assessments on the banks is extremely remote. This is simply a back-door bailout of the FDIC, structured as a line of credit so it does not increase the reported budget deficit.
Using the FDIC to backstop the PPIP program is simply a way to bypass Congress. There is no way that Congress could not have approved the line of credit and let the FDIC become insolvent. By all rights, the assessments on the banks should be raised to make up for the shortfall in the FDIC, but now is not exactly the time to do it, since it would simply deplete their capital at a time when they desperately need to improve their capital base.
To bring the fund up to a more normal 1.2% of insured assets would require $44.8 billion, not counting the losses that the fund has incurred so far in the second quarter, or any subsequent losses. That would be a pretty hefty tax for the banks to pay.
