Friday, March 20, 2009

Sheila Bair: FDIC Reserves To Hit Zero

When I wrote about this issue a week ago, I thought I was going to be called out for prognosticating gloom and doom as usual...Well, no such luck, in fact quite the opposite. Sheila Bair came out with some very scary words for depositors everywhere:
“Without additional revenue beyond the regular assessments, current projections indicate that the [depositor investor] fund balance will approach zero,” Bair said.
In the words of Lewis Black, I will repeat that, because it bears repeating:

“Without additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero."

This is actually one of the most terrifying news I have heard in forever, as it goes to the heart of depositor confidence problem, with a next step being the global bank run that Kanjorski was fuming about.

The reason for Bair's statement is to attempt to explain the need for the recently instituted fee increases for TLGP participants.
"Even though this increase comes at a difficult time, I strongly believe that keeping deposit insurance industry-funded will be better for you and your customers when this crisis is over."

“I’m optimistic that Congress will soon act on the borrowing authority increase,” Bair said. “This should give us the breathing room we need to reduce the special assessment, while covering all projected losses, with industry funds.”
Oh yes, let's not forget that Chris Dodd of such recent fame as the AIG bonus scandal, is trying to plough even more taxpayer money into a cause worthy of... saving taxpayer money... Still not too sure I understand how that works. But let the law of unintended consequences strike as it may.

Bair also had some very favorable things to say of the recent accounting changes proposed by the FASB which I wrote about yesterday (of course Bair will be a proponent of opacity: last thing depositors need to know is that DIF is negative among other things).

There is a minor light at the end of the tunnel.
Bair said she wants to “end too-big-to-fail” models that have shaped U.S. policy and wants financial firms to reduce systemic risk by “limiting size” and “complexity.” She said regulators “need to impose higher capital requirements” to ensure banks have enough capital to withstand worsening economic scenarios.
In the meantime, Bair is praying that nobody realizes that there is no money left to insure America's deposits, and that everyone absorbs the optimism spewing forth from the lips of CNBC's Steve Liessman like a wet sponge.

The only appropriate ending to this post are the following words:
"I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern ship building has gone beyond that."

Captain Edward J. Smith, Commander of Titanic
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17 comments:

Anonymous said...

No surpirse on this one, they are bankin on the stupidity of the Peeps which may not be a bad bet.

Rufus Willy said...

So what happens if FDIC can't make good on their commitments. They aren't going to just say sorry... right (he said panic stricken)?

Tyler Durden said...

it is all symbolic. the most recent reading on the DIF was at 0.4% of all deposits, while it is supposed to be at 1.125% ( I believe) statutorily. Obviously if you have a real bank run even the full amount would do diddly squat. However if depositors realize that even their token insurance is gone (mostly to pay for bank failures) then all hell could break loose.

NCAA said...

You See this is why I like Gold. NO Counter Party Risk.

J.D. Swampfox said...

I left this on SA, it seems appropriate here too...

If You Can

If you can keep your head when all about you suckers are buying bank stocks based on smoke the Dimon’s and Pandit’s blow…

If you can watch Tangible Common Equity when all about you suckers accept the Tier 1 Capital fantasy that FASB wants to allow…

If you can focus on Comprehensive Income when all about you suckers fall for whatever the bank wants to report for Net Income…

Then, while all about you suckers are asking for bailouts from FED, Treasury or SIPC, you’ll be rich, my son, and then some.

copyright J.D. Swampfox, March 20, 2009

Ian said...

Well at least they go to the head of the bailout line...Remind me again why Shelia is suddenly gaining some attention as a possible Treas Sec replacement?

Anonymous said...

The US Govt will just refill it with printed money so does the fact that its zero even matter?

Anonymous said...

so you're saying I should buy more BAC put options?

Tyler Durden said...

ZH does not advise on securities transactions. ZH advises its readers to use their brains

Anonymous said...

"I assure you she can and will sink
it is a mathematical certainity"

Anonymous said...

It is hard to imagine a more shockingly stupid statement from the person running FDIC. The line from the government must be that FDIC deposits are secure.

Nunya said...

Yawn. It doesn't matter whether it consumes all the current FDIC balance or not. There is no doubt that the government will back FDIC in case it doesn't have enough funds to cover insured depositor losses in any bank failures. The failure to do that would instantly destroy the system far more certainly than an failure of Citigroup or BofA or AIG would have done - and we already have hard evidence of the extremes they're willing to employ to assure that those entities remain viable.

Now, should the FDIC bolster its own funds? No doubt it will be better if it can weather the storms without having to resort to government backup.

As far as the message from her as the head of the entity, what she said technically was correct and said in the appropriate forum, because it's a message that needs to be communicated to the bankers in question. I don't know that I would have phrased it in quite that way and lent my words to be misquoted so easily. But such is the grand game of telephone that the reporting media and bloggers produce...

qadi said...

Is that woman told to say stuff like this to sucker in bank shorts and then have another "leak" that blows them up two days later?

Agree with above: FDIC will get everything it needs from treasury.

camilla said...

TD:"if depositors realize that even their token insurance is gone (mostly to pay for bank failures) then all hell could break loose."

And that is undoubtedly why Bloomberg changed the title they were running on the story. It now reads "Bair Defends Fee to Build Deposit Reserves Amid Bank Opposition". The earlier headline included the word "Zero".

camilla said...

For reference, the old headline was: "Bair Says FDIC Reserves May Hit Zero Without New Fees"

Anonymous said...

Yeah, Im terrified, just like you.

I'm running out Monday morning and breaking all my CD's, pay the penalty, and buy bullyon.

That's right. fix your spell checker.

OhmeOhmy said...

"and that everyone absorbs the optimism spewing forth from the lips of CNBC's Steve Liessman like a wet sponge."


Wet sponges are at or close to the maximum absorption phase. A dry sponge has the most room for absorption. I'm a dry sponge.