Tomorrow, August 25, the FDIC releases its Q2 report

[FluffyMcDeath]

Should be a fun one.
pre-analysis from Saxo Bank Research.

If you've been following along with the Failed Bank List you'll have noted that "only" twenty some banks failed in the first quarter, but the second quarter saw over twice as many failures. The FDIC funds for covering these losses has been heavily depleted over the last couple of years falling from around 50 billion in the middle of '08 to about 13 billion at the end of Q1'09. The FDIC burned through 4 billion in Q1. If expenses per closing track the same for Q2 the the FDIC will be just about out of money (despite having raised the amount that banks have to contribute).

Of course, the fund cannot be allowed to go dry. If it did, then the first bank that closed leaving depositors penniless would be the end of US banks. Small banks would see runs as depositors tried to get their money out. Closing the doors is no longer effective as banks run 24hrs a day thanks to computers and networks. If your bank just closed its doors then you could still transfer funds to a bigger bank - and if you didn't trust any US banks then you could transfer to foreign banks in foreign currencies and that would kill the dollar.

So you can be pretty sure that if the FDIC is just about out of money then some will be magicked up for it by legislative decree. In fact in May Congress already authorized the FDIC to borrow up to 100 billion from the Treasury.

Have we seen the peak of the bank failures yet? I wouldn't count on it. There is still a lot of rot in the system including the fact that 13% of home mortgages in the US are in default, unemployment is still rising, retailers are ailing, malls are closing and commercial real estate looks set to start defaulting on mortgages too - not to mention that gargantuan amounts of phantom money still lurks in the system waiting for the light of day to shine upon it and disperse it to vapour when the lid comes off - one institution at a time.

 

[redrumloa]

Good post, too many people seems to be ignoring the elephant in the room. The stock market has rallied off the lows, despite all the negative data and real life pain out there. Looks like the mother of all headfakes to me. I expect another black friday type events in the near future, with the DOW dropping ~1,000 points in a single session and dropping to test the old 52 week lows within a couple weeks.

I don't want this obviously, but even Warren Buffet (who campaigned for Obama) has been distancing himself from the Obama administration.

 

[FluffyMcDeath]

The FDIC site the Board of directors will meet in open session on Aug 26.
link which will be webcast.

August 27th seems to be the day they'll announce the quarterly report.
Also webcast.

 

[FluffyMcDeath]

So the board meeting was on the 26th and it was pretty dry stuff. They did vote on a couple of things, the first was a policy statement about the capitalization that would be required of US private equity companies that wanted to take over banks. The rest of it I kind of drifted off

As to the report ... well I admit I haven't read it all yet but seems that the $8 billion out was about right. The reserve went from $13 billion to about $10 billion but because of the extra charges to the banks to raise funds they brought in about $5.6 billion so they spent about 8, 8 and a half-ish.

August bleeding was slower than July but Octobers have been bad months traditionally for finance so the downhill side of the year may be a little hairy. The troubled bank list was raised about 30% to stand at around 400 troubled banks. No names, of course.

I'll be watching to see if the closures have peaked, but ultimately there's still a lot of mess and these things can take years to finally shake out. Interestingly I just heard that the Chinese have been asking to lend priced in Yuan rather than dollars. Seems like they are nervous about getting paid back in worthless dollars. That would be a major shift in economic power in the world if it were to happen. Don't see anyone making a deal like that unless they absolutely had to, by which point we'd know the game was over.