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Bank Failures To Cost $100B In 18 Mos

From a rose-colored Associated Press:

FDIC Chair Sheila Blair reads her documents before the start of hearing at the House Financial Services on Capitol Hill in Washington, Wednesday, Sept. 23, 2009.

Regulators close banks in Colorado, Mich., Minn.

By Tim Paradis And Marcy Gordon, AP Business Writers Sat Oct 3

NEW YORK – Regulators have shut Warren Bank in Warren, Mich., and two small banks in Colorado and Minnesota, boosting the number of failed U.S. banks this year to 98 as loan defaults rise in the worst financial climate in decades…

Ninety-eight banks have failed so far this year as losses have mounted on commercial real estate and other soured loans in the wake of the financial crisis and the recession that has gripped the economy. The failures have cost the fund that insures bank deposits about $25 billion, the FDIC said Tuesday.

The fund has been so sapped by the wave of collapsing banks that it now has fallen into the red. The FDIC now expects the cost of bank failures to grow to about $100 billion over the next four years — up from an estimate of $70 billion made in the spring. Most of the $100 billion in costs are expected to come from failures this year and next.

Faced with that sobering prospect, the FDIC board took the unprecedented step Tuesday of proposing to have U.S. banks prepay $45 billion, or three years’ worth, of insurance premiums.

The plan won’t provide a long-term remedy for the depleted fund but would spare ailing banks the immediate cost of an alternative idea: paying an emergency fee for the second time this year. And most banks likely would be able to prepay their premiums without having to reduce lending to businesses and consumers.

The FDIC is fully backed by the government. That means depositors’ money is guaranteed up to $250,000 per account. And the agency still has billions in loss reserves — including about $22 billion in cash — apart from the insurance fund.

The number of banks on the FDIC’s confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That’s the highest number since June 1994, during the savings-and-loan crisis

Notice how the truly shocking news is buried in the article. And really only obvious if you start thinking about the math.

After noting that FDIC has gone into the red because the 98 bank failures have cost $25 billion, the article blithely notes:

The FDIC now expects the cost of bank failures to grow to about $100 billion over the next four years — up from an estimate of $70 billion made in the spring. Most of the $100 billion in costs are expected to come from failures this year and next.

That sure sounds like we are going to have a heck of a lot more bank failures during the rest of this year and the next.

But don’t worry. The FDIC will simply charge banks $45 billion more for coverage.

And, the Associated Press assures us that won’t affect loans to businesses or consumers or cause your banking costs to go up.

By the way, note how the AP artfully avoids telling us what the historical rate for bank failures is.

But just to put this in a little perspective, according to the FDIC there were 25 bank failures in the United States in 2008. There were only three in 2007.

And none in 2006 or 2005.

This article was posted by Steve on Saturday, October 3rd, 2009. Comments are currently closed.

8 Responses to “Bank Failures To Cost $100B In 18 Mos”

  1. Confucius says:

    And, the Associated Press assures us that won’t affect loans to businesses or consumers or cause the cost of your banking to go up.

    Where in the article does it say the cost of my banking won’t increase? Of course it will!

  2. Confucius says:

    Makes me wonder if the increased limits ($250,000) are just for suckers.

  3. proreason says:

    Gee it’s almost as if there is something in the banking system that makes banks fail.

    What could it be.

    What could it be.

    Well, one thing we know FOR SURE, is that is isn’t related to the Communitiry Reinvesment Act. Oh yeh, maybe there were a few million, or maybe even a few ten million loans made to people who never intended to pay them back…..but making those loans was fair. If the entire economy failed for doing something “fair”, then the economy deserves it, right?

    And if you lost your life savings, who are you to complain?

    You are probably white anyway.

    And most of the people who got the loans were poor, except for the deadbeats who were just scamming the system, and speculators, and politicians, and friends of politicians.

  4. Rusty Shackleford says:

    There are those who say that by dumping money into a shrinking economy, it merely delays the inevitable. When I read things like this I think “crash”. At the very least, it means a slow, sluggish economy that will parallel our stunted 1970’s economy. But when on the road to recovery, we have the added “benefit” of NAFTA’s poorly inflated tires to slow us down even more.

    Sure, I’m no intellectual with a PhD in economics or finance, but I know crap when I hear it.

  5. Media_man says:

    What’s striking is that the Obama administration is giving another $40 billion to low & moderate income housing funding while charging healthy banks almost the same amount to shore up the FDIC. How is this tax on banks not going to result in more banks going bankrupt? Isn’t throwing money at marginal buyers how we got into this mess to begin with?

    It’s almost enough to make one buy gold. The dollar will be worth less than Charmin before long.

    • Rusty Shackleford says:

      And, as Pro Reason has mentioned many times, that may be the ultimate goal. Remember Germany with wheelbarrows of marks to buy a loaf of bread?

    • proreason says:

      “Remember Germany with wheelbarrows of marks to buy a loaf of bread?”

      Which fortuitously led to absolute power for the Nazis.

      Which of course is not a parallel between Obama and the Nazis, because we know there aren’t any parallels between them. For the Moron, a hyper-inflationary strategy will strengthen our country, or something.

  6. Confucius says:

    Based on FDIC numbers, an average of 41 banks fail each year.

    Consequently, the following presidents recorded the following averages:

    –Obama: 95
    –G.W. Bush: 6
    –Clinton: 12

    http://www2.fdic.gov/hsob/HSOBSummaryRpt.asp?BegYear=1934&EndYear=2009&State=2


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