"It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

[Sapiens]

http://finance.yahoo.com/tech-ticker...KF,xlf,jpm,fas

The failure of some of the nation's largest banks in 2008, including Washington Mutual, Wachovia and IndyMac, and scores of smaller banks this year came at a price. The Federal Deposit Insurance Corporation's fund that insures the country's deposits now stands at $10.4 billion, down from $45.2 billion the prior year.

Jim Bianco, president of Bianco Research in Chicago doesn't believe depositors need worry, because the government has the power of the printing press to make good on FDIC insurance. But he is troubled. "As a taxpayer you should be concerned because this could be another potential drag and possibly a significant drag on the U.S. Treasury and bloat the already record federal deficit," he says, echoing a Wall Street Journal editorial on Tuesday, suggesting the FDIC may be the next entity in need of a bailout.

...

Oh boy!

[Jay]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

http://finance.yahoo.com/tech-ticker...KF,xlf,jpm,fas



Oh boy!

And once you start printing, it gets real hard to turn the presses off. Politically the economic downturn once the presses stop is real tough to swallow for the uneducated voter. And, of course, the initial apparent uptick while printing doesn't do anything but continue to destroy the real economy, wasting capital in inefficient ways. Hmmm, didn't we just have an uptick after printing? Wasn't that a tasty greenshoot or two? ;):rolleyes::eek: The pressure to keep printing will mount and become irresistible unless we get an extraordinary voice who can speak above the den of vipers. I don't see it at the moment. The more printing goes on the less likely that voice can be heard if it exists at all. Eventually every vestige of morality will be overrun by speculative casino culture if printing goes amuck.

[Quincy K]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

"federal deficit"


What is that?

Some kind of new stimulus program?

[metalman]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

And once you start printing, it gets real hard to turn the presses off. Politically the economic downturn once the presses stop is real tough to swallow for the uneducated voter. And, of course, the initial apparent uptick while printing doesn't do anything but continue to destroy the real economy, wasting capital in inefficient ways. Hmmm, didn't we just have an uptick after printing? Wasn't that a tasty greenshoot or two? ;):rolleyes::eek: The pressure to keep printing will mount and become irresistible unless we get an extraordinary voice who can speak above the den of vipers. I don't see it at the moment. The more printing goes on the less likely that voice can be heard if it exists at all. Eventually every vestige of morality will be overrun by speculative casino culture if printing goes amuck.

look at this friggin chart...



remember the early 1990s banking crisis? look at the distribution of non performing loans by size of bank. look at the rate of increase in non performing loans. do you see what i see? if 1990 was bad, now we face armageddon.

[Sapiens]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

You sir, are an alarmist. "Don't you know, our government would never let anything that bad happen; I am sure you are aware all they have to do is issue a benefits card. Right?"

[icm63]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

Metalman.

If I read the chart correctly thats the chart of the NUMBER of banks failing.

As deposits are concentrated in fewer banks, a chart of the amount of deposits by the fail banks will show that the situation is more serious than 1991...and more like 1930. The number of banks chart, hides the real situation of the amount of deposits held by banks involved !

[Diarmuid]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

look at this friggin chart...



remember the early 1990s banking crisis? look at the distribution of non performing loans by size of bank. look at the rate of increase in non performing loans. do you see what i see? if 1990 was bad, now we face armageddon.

I'll give it a go MM all though I will probarbly be wrong again :p. But the graph seems to show that problems in the 90s were more prevasive in the bigger banks hence the spead between the ratio of big banks failing compared to the smaller ones. However this time around the lines indicating bank sizes seem to be converging (exponential like?) indicating the problem may well be far more pervasive this time around, i.e everyone has toxic assets (or potential toxic assets if or as the crisis spirals) on their books these days, comparing time lines and assuming the crisises behave similarly this maybe an indication many many more, smaller banks may fail this time round.:confused:

[zoog]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

I'll just leave this here...;)

From cobben's thread about IRA's stress test results.

[ASH]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

I'll just leave this here...;)

From cobben's thread about IRA's stress test results.

Red is good, right? Because it's on top? Yay red? 'F' for fantastic!

[Camtender]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

Comparing Today's Bank Crisis to the Past

http://seekingalpha.com/article/1580...is-to-the-past

Even when adjusted for inflation and population growth, the 2008-09 banking crisis far exceeds previous banking crises, including even the Great Depression. There were 10,000 bank failures in the Great Depression, but few of them had branches.
Today, a medium sized bank usually has hundreds of branches and the two big failures, Washington Mutual and Wachovia Bank had more than 8,000 branches between them.
Thus, the number of actual bank locations affected in the current crisis, which is not over, is similar to the entire period of the Great Depression from 1929 to 1941.
When it comes to the amount of money involved, the current crisis has 70 times the asset dollars in failed banks compared to the Great Depression. Even when the figures are adjusted for inflation and population growth, the current crisis is still much larger in dollar terms.
An article at TheStreet.com entitled "Banking Crisis Dwarfs the Great Depression" gives the analysis details (here). The conclusion of that article states:

How does this bank crisis compare historically? There is no comparison.

This conclusion can also be seen in the analysis of the magnitude of assets involved in past crises to the GDP values at the time. This is shown in the following table:



The relationship of the current banking crisis to the size of the economy is more than seven times greater than the worst year of the Great Depression (1933). This crisis is 19 times larger with respect to GDP than the next worst year, 1989, in the S&L crisis.
These are astounding relationships. We have been and still are in unchartered territory. The Great Depression may not be repeated, but, in some ways, we have exceeded it to the downside. The ability of the U.S.and the world economy to withstand such a shock amazes me.
Now we have to see how the aftershocks and the financial system structure weakened by the "big one" interact in the coming years. I did not say months; it will take years to repair the effects of an event of this seismic magnitude.
Be prepared for the unexpected. We have never gone this way before.

[Adeptus]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

Comparing Today's Bank Crisis to the Past
The Great Depression may not be repeated, but, in some ways, we have exceeded it to the downside. The ability of the U.S.and the world economy to withstand such a shock amazes me.

Yeah... and to think most of the derivatives (CDS, CDOs, SIV's, etc) haven't even hit yet. Which makes me wonder, is anybody really tracking this stuff regularly and publishing it on the net? It's kind of like the gigantic elephant...er... I mean, black swan in the room.

I've read that some of the remaining Investment banks have massive quantities of these babies, but do we really have any info as to what could trigger them to blow up?

[ASH]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

The Great Depression may not be repeated, but, in some ways, we have exceeded it to the downside. The ability of the U.S.and the world economy to withstand such a shock amazes me.

I wonder if the Seeking Alpha analysis in terms of assets-to-GDP ratio of failed institutions is the right basis for comparison. It occurs to me that the impact of bank failure pre-FDIC was a lot more severe than a bank failure today. The author marvels at our ability to withstand the shock, but in today's crisis, the depositors of failed banking institutions are made whole (at least those with less than $250k on deposit), and banking operations of the big failed institutions pass more-or-less seemlessly to their buyers. We tend to deride the FDIC around here because of the size of the insurance fund relative to its obligations, but so far, the existence of FDIC goes a long way to explain why our experience of bank failure today is so different from that during the Great Depression. Thus far, the failures haven't been nearly as disruptive to economic activity nor so individually ruinous. Of course, it ain't over yet...

[bpr]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

Metalman.

If I read the chart correctly thats the chart of the NUMBER of banks failing.

As deposits are concentrated in fewer banks, a chart of the amount of deposits by the fail banks will show that the situation is more serious than 1991...and more like 1930. The number of banks chart, hides the real situation of the amount of deposits held by banks involved !

As I see that chart, it's the percentage of loans failing by bank size, and it does not directly address bank failures. EJ's implication is that these failed loans will result in failed banks.

Here's the chart for non-performing loans for all banks:



Source

Percentage of nonperforming loans equals total nonperforming loans divided by total loans. Nonperforming loans are those loans that bank managers classify as 90-days or more past due or nonaccrual in the call report. Precisely, total nonperforming loans equals the sum of call report items rcfd1403 and rcfd1407. Total loans equals call report item number rcfd2122.

This, I think, is an updated version of EJ's chart with the total line added (just to make it more confusing, since it's just an average of the other five lines) as well as the tiny banks (<$300m in deposits). Interestingly, it appears that the loan failures are diverging, with the big banks (NPTLT5, the grey line) leading the way, at about 1.5% greater non-performing loans than the tiny community banks with under $300m (NPTLT1, red line).



EDIT: I'm not sure if I did this right; EJ's chart is from three weeks ago, and it seems like the categories of banks he outlined have moved pretty much in lockstep 50 basis points upward, but I think the data set is quarterly. 3% went to 3.45% and 3.9% went to 4.64%.

[zoog]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

Red is good, right? Because it's on top? Yay red? 'F' for fantastic!

Uh oh, have you been watching financial TV again?;):p

[vinoveri]

Re: "It Could Get Ugly Very Fast": Banking Crisis Grows, FDIC's Funds Shrink

I wonder if the Seeking Alpha analysis in terms of assets-to-GDP ratio of failed institutions is the right basis for comparison. It occurs to me that the impact of bank failure pre-FDIC was a lot more severe than a bank failure today. The author marvels at our ability to withstand the shock, but in today's crisis, the depositors of failed banking institutions are made whole (at least those with less than $250k on deposit), and banking operations of the big failed institutions pass more-or-less seemlessly to their buyers. We tend to deride the FDIC around here because of the size of the insurance fund relative to its obligations, but so far, the existence of FDIC goes a long way to explain why our experience of bank failure today is so different from that during the Great Depression. Thus far, the failures haven't been nearly as disruptive to economic activity nor so individually ruinous. Of course, it ain't over yet...

yes, and maybe another reason would be that "monopoly money" is a bit easier to come buy. If total assets of F banks is $3-4T, what's the big problem, the Fed and Treasury have already pledged $23.7 T to backstop the system, and who knows how much they've spent so far. People are convincing themselves that deficits don't matter, and perhaps for a while longer they don't ... until they do (but this puts a damper on all that wishful thinking)