08/17/09 Baltimore, Maryland
Today’s global stock sell-off really started on Friday, when the U.S. suffered its worst bank failure of 2009. Alabama-based Colonial Bank gasped its last breath late Friday. With roughly $25 billion in assets, it was the biggest bank failure since Washington Mutual back in September.
Like WaMu, the FDIC brokered most of Colonial’s burden onto another bank’s balance sheet. BB&T picked up the lion’s share. And just like the WaMu/JP Morgan deal, the FDIC greased the gears by including some kind of backstop provision. In this case, BB&T and the FDIC (read: your tax revenues) will enter a loss sharing agreement on $15 billion in shaky Colonial assets.
Colonial’s failure took a $2.8 billion chunk out of the FDIC’s deposit insurance fund. With just $13 billion left — at best — the fund is at its lowest level since 1993. Along with four other banks that failed over the weekend as well, the FDIC has closed 77 banks this year. One more and we’ve tripled last year’s count.
“The FDIC has been tardy in resolving banks and cleaning them up,” says Dan Amoss, “which will result in higher costs to the FDIC in the long run. Plus, with these ‘loss sharing’ deals (Colonial/BB&T), the FDIC is putting off the recognition of losses over a period of years, and its estimates of ultimate losses will likely be low, whether they’re ultimately absorbed by the deposit insurance fund or acquiring banks like BB&T.
“A perfect example is Integrity Bank in Georgia, which should have been shut down long before it was allowed to attract new deposits with high CD rates.
“Also, note to readers: If your CD rates seem too good to be true, your bank may not be healthy, and you may have to deal with the hassle of not accessing your money while the bank is resolved.”
Ian Mathias
Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.
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C’mon Ian, you and I both know better than to cave into Government-speak and use the “FDIC deposit insurance fund” term when we both know it has never been anything but a ‘ghost’! Any “losses” or “payouts” are handled as a loan from Treasury as the funds to cover are borrowed as quickly as overnite. Sheila Bair is a stooge in charge of a phantom fund full of nothing but promises made good by our dollar-heavy Chinese friends.
I’m beginning to think why not just sell stocks every Friday from now on. The reason? They will wait until either late in the day or after regular trading is closed, every Friday, to break bad news in hopes everyone will forget over the weekend. If you sell in the morning you’ll hit the weeks high, buy them on Tuesday. Wash, rinse, repeat.
Uhh. FDIC doesn’t have any money.All it has is a promise from Treasury to provide money.