The Bailout has to work because the FDIC can’t continue this pace
The poor FDIC is being challenged like few times in its illustrious history. With nine bank failures already this year and twenty-five bank failures last year, something’s got to give. The agency was forced to approach Congress and request that it increase its line of credit substantially. Currently, that line of credit stands at $30 billion; the FDIC is requesting an increase to $100 billion.
Recent Failed Banks
In the past several days, two additional banks have failed in California and one more in Georgia. Those failures have brought the price tag for the FDIC to $452 million year to date.
The bank in George, FirstBank Financial Services, was merged with Regions Bank. FirstBank had $337 million in assets and $279 million in deposits. FDIC took over as receiver. The total cost to the Deposit Insurance fund was $111 million.
The California banks were Alliance Bank of Culver City and County Bank in Merced California. Alliance, a much bigger bank than the bank in Georgia, had assets of $1.14 billion and deposits of $951 million. FDIC arranged for California Bank & Trust to take over the failed bank. The cost of this arrangement to the Deposit Insurance Fund; $206 million.
The other California bank, County Bank, was the largest with $1.7 billion in assets and $1.3 billion in deposits. Another California bank, Westamerica Bank, will take over the failed banks assets and deposits. With this arrangement in place, the cost to the Insurance Fund was $135 million.
The bailout effort supplemented by the FDIC effort
With projections of numerous bank closures during 2009, the agency is gearing up for a tough year. The FDIC works with other stronger banks to take over the accounts and branches of a failed bank. Through the end of this year, the FDIC also insures accounts up to $250,000. This effort is reinforcing steps taken by the Treasury Department to incent lending.
FDIC also has the very real concern that between now and 2013, there will be more than $40 billion in losses that the fund will have to cover. This will result from current and future bank failures. The agency has had to raise the premiums they charge banks and thrifts to make up for the expected shortfall.
The agency is also is doing what it can to reignite lending between banks. They are guaranteeing the debt so that the lending banks will have added security when lending. According to sources, the FDIC knew of at least 171 troubled institutions as of last fall. That is the largest number since 1995.
March 21st, 2009 at 2:01 am
[...] an AP story that was reported in recent days, FDIC Chairwoman Sheila Bair has admitted that the government needs a new model for their bailout [...]