Bank Failures in the U.S.

According to the FDIC, there were 8,012 banking institutions as of April 2010.
According to the FDIC, there were 8,384 banking institutions with $13.6 trillion of assets as of September 2008.

In 1929, only nine months after the inauguration of Herbert Hoover, the Council on Foreign Relations engineered the Great Crash of 1929. The crash was the most significant fruit of the new Federal Reserve—the system initiated to prevent such occurrences. Between 1923 and 1929, the Federal Reserve inflated the nation's money supply by 62 percent. In the year before the crash, more than 500 banks failed nationwide. The stage was now set for disaster. — A Historical Perspective on the Financial Meltdown

Total U.S. Bank Failures in 2010 as of December 17: 157
Total U.S. Bank Failures in 2009 as of December 31: 140
Unofficial Problem Bank List as of May 7, 2010
Problem Bank List Jumps to 829 (July 2010)
Problem Bank List Jumps 27% to 702 (December 2009)
Problem Bank List Rises to 416 (August 2009)
Problem Bank List Tops 300 (March 2009)
As of August 14, 2009, FDIC is Bankrupt
Full List of Bailed-out Banks
The 171 Banks for Which the Margin of Failure Is One Thousand Dollars

Nearly 100 Bailed-out Banks May Collapse All the Same

December 27, 2010

Raw Story - Nearly 100 bailed out banks may collapse all the same: analysis

More collapsing banks could mean more 'too big to fail' banks

The $700-billion bank bailout, launched in the final months of the Bush administration, was meant to save US financial institutions from a systemic collapse. But an analysis of banks' earnings statements concludes that nearly 100 bailed-out banks are at risk of collapsing all the same.

Despite receiving a total of $4.2 billion in bailout cash, 98 US banks are at risk of failing, the Wall Street Journal reports.

The banks are suffering from “eroding capital levels, a pileup of bad loans and warnings from regulators,” the Journal reports, and the nature of the problem indicates that these banks were in trouble before the 2008 crisis hit -- a sign that the US's regulatory structure for banks may have been insufficient for years or decades before the collapse.

So far, seven bailed-out banks have already collapsed, costing taxpayers $2.7 billion.

Chris Cole of the Independent Community Bankers of America argued to the Journal that the smaller banks at risk of collapse didn't have access to all the same financial instruments that the larger banks had.

For example, the Federal Reserve ran an emergency liquidity program for the large Wall Street banks, giving them short-term loans to keep them stable. Last fall, after pressure from Congress, the Fed released the names of the recipients of $3.3 trillion in emergency aid. Among them were Bank of America and Wells Fargo, as well as a number of foreign banks, including Switzerland's UBS and France's Societe Generale.

But smaller, regional US banks did not have access to this program, and relied on the $700-billion TARP program passed by Congress. That program was never meant to help out banks that were in trouble prior to the crisis -- but as the Journal's analysis shows, many of these banks may have been "in parlous shape from the beginning."

In all, the Journal analysis found that more than 10 percent of the US's 7,760 banks are in financial trouble. Should more banks fail, it will likely result in greater concentration of banking in the hands of fewer banks. Many economists have argued that the creation of "too big to fail" banks through mergers poses a serious hazard for the economy, as these banks can feel comfortable taking on unnecessary risk, knowing they can count on a taxpayer bailout if they fail.

Because many of the larger banks are now in good health and have been able to repay bailout funds, the TARP program may itself not turn out to be as large a burden on taxpayers as once feared. According to the New York Times, the program -- which ended this fall -- could end up costing "a fraction" of the original cost, "and could conceivably earn taxpayers a profit."

But it may not rescue many of today's ailing banks. Arthur Wilmarth, a banking and law expert at George Washington University, told the Journal that many of these banks are saddled with commercial real estate loans that will never pay off.

"A lot of them are in kind of a frozen position," he said.

Bank Failures in the U.S.

Banks Fail in Maryland, California, Washington; 143 Total in 2010

November 6, 2010

Associated Press — Regulators shut down four banks Friday, bringing the total of 2010 failures to 143. That tops the 140 shuttered last year and is the most in a year since the savings-and-loan crisis two decades ago.

The Federal Deposit Insurance Corp. took over K Bank, based in Randallstown, Md., with $538.3 million in assets, and Pierce Commercial Bank, based in Tacoma, Wash., with $221.1 million in assets. The FDIC also seized two California banks: Western Commercial Bank in Woodland Hills, with $98.6 million in assets, and First Vietnamese American Bank in Westminster, with assets of $48 million.

M&T Bank, based in Buffalo, N.Y., agreed to assume the deposits and $410.8 million of the assets of K Bank. First California Bank, based in Westlake Village, Calif., is acquiring the assets and deposits of Western Commercial Bank. Heritage Bank, based in Olympia, Wash., is taking the assets and deposits of Pierce Commercial Bank, while Los Angeles-based Grandpoint Bank is assuming the assets and deposits of First Vietnamese American Bank.

In addition, the FDIC and M&T Bank agreed to share losses on $289 million of K Bank's loans and other assets. The FDIC and First California Bank are sharing losses on $83.9 million of Western Commercial Bank's assets.

The failure of K Bank is expected to cost the deposit insurance fund $198.4 million. That of Western Commercial Bank is expected to cost $25.2 million; Pierce Commercial Bank, $21.3 million, and First Vietnamese American Bank, $9.6 million.

Like the four banks, the banks that have failed this year are smaller, on average, than those that succumbed in 2009. That has meant the deposit insurance fund has suffered a milder loss, which has reached about $21 billion so far this year, compared with $36 billion in 2009.

Still, banks, especially small community institutions, are falling as soured loans have mounted and the economy has sputtered. The wave of closings points to the lingering power of the recession more than a year after its official end.

Florida, Georgia, Illinois and California have each seen bank failures in the double digits this year. Some communities in those states are still reeling from the financial meltdown that brought an avalanche of bad loans, especially for commercial real estate.

The shutdowns Friday of Western Commercial Bank and First Vietnamese American Bank brought to 12 the number of bank failures in California this year.

The closures nationwide have compounded the problems in areas already straining under high unemployment, foreclosed homes and vacant malls and office buildings.

Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The 2009 total of bank failures had been the highest annual toll since 1992, at the height of the savings and loan crisis. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars out of the FDIC's deposit insurance fund. It fell into the red last year, and its deficit stood at $15.2 billion as of June 30.

The number of banks on the FDIC's confidential "problem" list jumped to 829 in the second quarter from 775 three months earlier, even as the industry as a whole had its best quarter since 2007, making $21.6 billion in net income. Banks with more than $10 billion in assets — only 1.3 percent of the industry — accounted for $19.9 billion of the total earnings.

The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.

Big Bank Bailout Payback Bamboozle

Goldman Sachs Earns $1.74 Billion, Easily Tops Forecasts

According to New American's Thomas R. Eddlem in his article titled CFR Corporate Members Get Lion's Share of Bailout Funds, Goldman Sachs received $10 billion TARP, plus a separate Federal Reserve bailout, and more than $13 billion of the allotment to AIG.

October 19, 2010

Associated Press - Goldman Sachs Group Inc.'s earnings easily beat analysts' forecasts again, but the bank saw a big slowdown in trading, its most profitable business.

Net income after paying preferred dividends fell 43 percent from the year-ago period as revenue in the bank's bond, currency and commodities trading division fell sharply.

Goldman Sachs' income fell to $1.74 billion, or $2.98 per share, the bank said Tuesday. It earned $3.03 billion, or $5.25 per share, during the same three-month period last year. Analysts polled by Thomson Reuters predicted earnings of $2.32 per share.

Revenue fell 28 percent to $8.9 billion, but still came in well ahead of the $7.92 billion analysts had forecast. Goldman's shares rose $2.50 to $156.20 in morning trading, despite a broad decline in the stock market.

Analysts have been expecting Goldman's earnings to decline because of slower trading, and have been slashing their estimates in recent weeks. A month ago, analysts' average forecast was for income of $3.05 per share.

Goldman's trading volume fell in the third quarter amid historically low interest rates and waning market volatility. Those low rates benefited Goldman's investment banking division, however, which reported a 24 percent jump in revenue. With borrowing rates so low, many companies were eager to issue new debt.

The decline in Goldman's overall revenue was also tied to a slowdown in stock trading and a weaker return on its investment in Industrial and Commercial Bank of China Ltd. Goldman's stake in the Chinese bank generated just $9 million in revenue during the quarter, down from $344 million during the same quarter last year.

The New York-based bank continued to reduce compensation costs. The bank was strongly criticized during the financial crisis for doling out big paychecks even after it received government aid and while the broader economy suffered.

Goldman set aside $3.83 billion for compensation and benefits during the quarter. It has now set aside $13.12 billion for compensation during the first nine months of the year, a 21 percent drop from the same period last year.

Compensation totaled 43 percent of the company's revenue for the year so far, down from 47 percent last year.

Bank Profits Soar, Lending Falls as Banks Pay Next to Nothing for Funds

August 31, 2010

Huffington Post - Bank profits jumped 21 percent last quarter to nearly $22 billion, the highest level in three years, as banks put away less money to cover future losses, fewer borrowers fell behind on payments and lenders paid the least for their funds in perhaps 50 years, a government report released Tuesday shows.

Lending also dropped by about $96 billion, or 1.3 percent, as borrowers continue to remain skittish about the "slow recovery," Federal Deposit Insurance Corporation Chairman Sheila Bair told reporters Tuesday in Washington.

"Consumers and businesses need to have confidence in the recovery before they will start making decisions on credit," Bair said, according to a transcript of her remarks.

Meanwhile, despite the sector's high profits, challenges remain: home prices are forecast to decline into next year while lenders continue to repossess homes at record rates; the commercial real estate market has yet to hit its nadir; community banks continue to fail; and the number of lenders on the FDIC's confidential "Problem List" continues to grow. Nearly 830 banks are on the list, up from 775 at the end of March, the FDIC's quarterly report shows.

"Without question, the industry still faces challenges," Bair said in a statement. "Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks and failures remain high. But the banking sector is gaining strength... most asset quality indicators are moving in the right direction."

It also helps that banks' cost of funds -- the money they pay to garner deposits and other funds that are then used to lend, invest or trade -- dropped to the lowest rate in 26 years of FDIC quarterly records. Banks paid 0.97 percent in interest for their funds, the first time they've paid less than one percent during a quarter since at least 1984, FDIC documents show.

Historical records on commercial banks' cost of funds going back to the inception of the agency in 1934 show that the last time banks paid less than one percent for the year was 1960.

With the main interest rate effectively at 0.19 percent, savers suffer in a low interest-rate environment as banks pay less to attract deposits. The Federal Reserve's policy-making body, the Federal Open Market Committee, has kept the rate at which banks lend to each other for overnight funds between 0 and 0.25 percent since December 2008.

Elsewhere in the FDIC report, the agency noted that two of every three banks reported higher profits compared to last year as firms put away the least amount of money to cover losses since the January-March period of 2008. Money socked away for a rainy day would otherwise be recorded as profit.

Though nearly two of every three banks increased their reserves for potential future losses, large banks cut theirs. Banks put away $40 billion, 40 percent less than during the same period last year, to cover future losses. Those with more than $10 billion in assets recorded $19.9 billion of the industry's $21.6 billion of profit, or more than 92 percent.

Also, lenders wrote off $49 billion in uncollectible loans, a small decline from a year earlier and the first year-over-year decline since 2006. Loan losses are stabilizing, the agency said. Commercial real estate loan charge-offs, though, saw an increase.

Loans delinquent for at least 90 days but not yet written off also declined for the first time in four years, though they increased for banks with less than $1 billion in assets, the agency said.

Loan balances continued their decline, led by real estate construction and development lending which dropped more than eight percent from last quarter, according to the FDIC. Loans to small businesses and farms dropped almost two percent, or more than $13 billion. Loans to large businesses, meanwhile, dropped just 0.4 percent.

Bair noted that community banks "slightly" increased their lending -- "to their credit," she added.

(See: Did the big banks really pay back the billions in bailout money from the U.S. taxpayers?)

Big Bank Bailout Payback Bamboozle

JPMorgan Chase's Profit Jumps 23 Percent in 3Q

JP Morgan Chase received $25 billion from TARP; Morgan Stanley (a spinoff of JP Morgan) received $10 billion.

The Wall Street Journal reported in March 2009 that about $50 billion of the more than $173 billion that U.S. taxpayers poured into AIG since October 2008 has been paid to at least two dozen U.S. and foreign financial institutions, which included Goldman Sachs, Morgan Stanley, Wachovia (now Wells Fargo), and Bank of America; therefore, these four banks received even more BILLIONS in handouts from taxpayers.

October 13, 2010

AP – JPMorgan Chase & Co. said Wednesday that its third-quarter profit jumped 23 percent because the banking giant was able to set aside less money to cover loan losses.

CEO Jamie Dimon did warn that loan losses are still high in both the mortgage and credit card portfolios, but they are no longer rising like they did during the recession. That enabled JPMorgan Chase to set aside $1.55 billion to cover losses in its retail financial services division, less than half the $3.99 billion in loss provisions recorded in the same period a year ago. Loan loss provisions in its credit-card business fell to $1.63 billion from $4.97 billion last year.

Dimon said the bank, the country's second-largest by assets and the first big bank to report quarterly results, expects losses in its credit-card division to fall in the next quarter.

The New York bank earned $4.42 billion, or $1.01 per share. It earned $3.59 billion, or 82 cents, during the same quarter last year.

The results came in well ahead of the 90 cents per share that analysts polled by Thomson Reuters were expecting. Shares rose 3 cents to $40.43 in morning trading Wednesday.

Profit in the investment bank, which has been a big strength for JPMorgan Chase in recent quarters, fell 33 percent. The drop was due mainly to lower fees from underwriting stock offerings.

Debt underwriting picked up sharply, however, as many companies took advantage of historically low interest rates to raise new cash through the bond market instead of through issuing new shares.

Income from trading currencies, bonds and other fixed-income products fell 38 percent during the quarter as interest rates remained low.

JPMorgan Chase and other major banks including Goldman Sachs Group Inc. posted huge trading profits last year as financial markets were recovering from the credit crisis, allowing them to offset losses from defaults on mortgages and credit cards.

Now that investment banking profit is slipping, a pickup in earnings from retail banking is helping JPMorgan Chase. Income from its retail banking division, which had the sharp decline in loan loss provisions, jumped to $907 million from just $7 million during the third quarter last year.

JPMorgan's credit card business earned $735 million in the third quarter after losing $700 million during the third quarter in 2009.

Even though JPMorgan Chase slashed its loss provisions during the quarter, it still holds reserves of 5.1 percent companywide to cover future losses, compared with 5.3 percent during the year-ago quarter.

Report Criticizes TARP Contracts to Fannie and Freddie

October 14, 2010

Reuters – The Treasury Department has relied heavily on private companies and troubled mortgage giants Fannie Mae and Freddie Mac to manage the $700 billion Wall Street bailout, a report released on Thursday said.

The report by the congressional panel overseeing the Troubled Asset Relief Program (TARP), said that the $437 million in Treasury contracts to Fannie Mae, Freddie Mac and private companies to manage critical aspects of the bailout program raised a number of concerns about public oversight and conflicts of interest.

"Treasury may be less likely to expedite meaningful reforms of Fannie Mae and Freddie Mac when it has employed them for combined arrangements of $240.5 million and when these firms agreed to provide their services at cost, receiving no profit from the deals," the report said.

The oversight panel is now headed by Senator Ted Kaufman who took the seat vacated by Elizabeth Warren, who left the panel to oversee the set up of the government's new Consumer Financial Protection Bureau.

When Fannie Mae and Freddie Mac were placed under government conservatorship in late 2008, officials blamed poor credit choices and bad risk management for their losses.

The Treasury contracts to Fannie Mae and Freddie Mac to manage the Treasury Department's foreclosure mitigation program have problems, the report said.

"Both Fannie Mae and Freddie Mac have a history of profound corporate mismanagement," it said. "Further, both companies have fallen short in aspects of their performance, as Fannie Mae recently made a significant data error in reporting on mortgage redefaults and Freddie Mac has had difficulty meeting its assigned deadlines."

Yet the Treasury Department is relying heavily on them, the report said.

"Fannie Mae alone currently has 600 employees working to fulfill its TARP commitments," the report said. "By comparison, Treasury has only 220 staffers working on all TARP programs combined."

Other contracts went to law firms, investment management firms and audit companies, the report said.

"The nature of these firms' relationship to the financial system inevitably gives rise to a wide range of potential conflict issues," the report said. "Treasury should develop an independent mechanism for monitoring conflicts that makes it less reliant on contractors and agents for information."

The report also found fault with Treasury's outreach to award contracts to small businesses.

"In one case, Treasury awarded a contract to a 'small disadvantaged business,' which in turn delegated roughly 80 percent of the contract to a 'large business,'" it said.

But Treasury failed to reach out to find qualified minority-owned businesses to participate in TARP contracts.

Treasury spokesman Mark Paustenbach defended the Treasury's use of outside contractors, who helped it act more quickly to stabilize financial markets during the financial crisis of late 2008 and early 2009.

"Treasury's demand for skills, resources and expertise was urgent and we quickly needed qualified assistance," he said in a statement. "At the same time, our contracting process remains open and transparent."

The authority to make new government investments in financial firms under TARP expired at the beginning of the month. The Treasury Department has said that what started out as a $700 billion program to stop a financial panic in the fall of 2008 will ultimately cost around $30 billion after selling off its stake in American International Group.

Bank Failures in the U.S.

Eight Banks Seized, One with Ties to Obama; Regulators Allow "Unusual Bid" for Failed Bank

August 21, 2010

MISH'S Global Economic Trend Analysis - The bell rings once again on "Foreclosure Friday". The toll this week is 8 banks. One of the banks, Shore Bank, has ties to the Obama administration, Goldman Sachs, and other notables.

Eight Banks Shuttered as 2010 Failures Reach 118

Bloomberg reports ShoreBank, Seven Others Shuttered as 2010 Failures Reach 118

ShoreBank Corp., the Chicago lender operating under a Federal Deposit Insurance Corp. cease-and-desist order for 13 months, and seven other banks were shut by regulators as 2010 bank failures climbed to 118.

Regulators also closed four banks in California, two in Florida and one in Virginia. All eight closures cost the FDIC’s deposit-insurance fund $473.5 million, the agency said yesterday. This year’s bank failures will surpass last year’s total of 140, FDIC Chairman Sheila Bair said last month in a Bloomberg Television interview.

Regulators Allow "Unusual Bid" for Shore Bank

The Wall Street Journal reports Regulators Seize ShoreBank; Management Takes Over

Regulators seized ShoreBank Corp. on Friday and agreed to sell assets to a team led by the community lender’s executives and backed by several large U.S. financial firms.

The bank closure, among the 118 failures in the U.S. this year, caps months of uncertainty for a $2.16 billion Chicago bank that had ties to the Obama administration and deep roots on Chicago’s South Side. The new institution will be known as Urban Partnership Bank and led by William Farrow, a former First Chicago Corp. executive who was ShoreBank’s president and chief operating officer at the time of its failure.

The decision to sell to management is a rare move by the Federal Deposit Insurance Corp., which generally bars investors who own more than 10% of the failed bank from bidding on its assets. The FDIC also typically wants to know if bidders have "ever been an officer or director of a failed institution" and "participated in a material way in one or more transactions that caused a substantial loss to any such failed institution," according to an FDIC document.

The structure of the deal "is unusual," said Atlanta banking attorney Chip MacDonald.

The holding company will remain intact, according to a person familiar with the deal. Urban Partnership is backed by a consortium of large U.S. financial institutions, including Bank of AmericaCorp., Goldman Sachs Group Inc. and Morgan Stanley.

Follow the Money

ZeroHedge reports Failure Of Obama’s Pet ShoreBank Costs Taxpayers $368 Million, Which Immediately Goes To…

Bank Failures in the U.S.

10 Ways You’re Being Fleeced by Banks

July 19, 2010

Activist Post - Taxpayers are rightfully angrier than ever before about the state of the U.S. economy and the government’s handling of the financial crisis; perhaps even more so than the Colonists at the original Tea Party. After all, it appears that the only group benefiting during this painful slide into recession are the very people who caused the crisis — The Banks.

On the verge of bankruptcy in 2008, the banks are now once again making record profits and paying record bonuses, while nearly every other industry struggles to keep their head above water. The banks seem to have designed the system where all businesses and individuals are dependent on them for credit; and without new lending, industry grinds to a halt. Given that banks can make risk-free profits by front running the stock market and selling $600 trillion of worthless derivatives for monster gains, there seems to be little motivation for them to lend money at today’s record-low interest rates.

Average Americans continue to be looted by this bank-controlled economic system through taxation and other more subtle ways:

1. Bailouts/TARP — The major banks warned in 2008 that their massively over-leveraged Ponzi scheme was about to take down the world financial system, and demanded a taxpayer bailout or else the sky would fall. Well, they got their bailout, which may be upwards of $23 trillion, between direct cash infusions and accounting write-downs, which amounts to around $76,667 for every citizen. The Federal Reserve also secretly bailed out foreign economies to at least the tune of $500 billion.

2. Predatory Lending — The banks have long practiced predatory lending to Third World countries, private businesses, and individuals. This strategic over-lending creates a situation where banks anticipate and manufacture default to obtain real assets. Since banks lend money they don’t have by making accounting adjustments, private bankers and their cohorts could conceivably, over time, own everything “real” in the world from money they created out of thin air.

3. Credit Cards — From marketing to teenagers with “Happy Meal-style” gifts and toys at sign-up, to Mafia-style loansharking with usury interest rates, banks use credit cards to further enslave the public. According to the credit card repayment calculator, if you owe $6,000 on a credit card with a 20 percent interest rate and only pay the minimum payment each time, it will take you 54 years to pay off that credit card. During those 54 years you will pay $26,168 in interest rate charges in addition to the $6,000 in principal that you are required to pay back.

4. Stock Market — The Goldman Sachs-dominated scheme called “front running” is where brokers use computer programs with intricate algorithms to buy or sell nanoseconds before large orders from the public. Originally designed to prevent this activity, these programs have been hijacked to “Beat the Street.” It’s the ultimate in insider trading, likened to a poker player being able to see his opponent’s cards. Is it any wonder why four of the largest U.S. banks (Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup) had zero days of trading losses during the first quarter of 2010?

5. Pensions/401(k) — Although severely weakened by stock market manipulation and other fraudulent behavior, Pensions and 401(k) retirement savings plans still represent a large portion of the people’s remaining liquid wealth — and the banks want it. Nearly $4 trillion worth of retirement savings was wiped out in the first weeks of 2008, where half of the losses were traditional pension plans, while another 46 million people were riding the stock market with 401(k). It was estimated in 2009 that two-thirds of public sector pension plans were underfunded to the tune of $430 billion. Long term, these public pensions are reportedly underfunded by $3.5 trillion due to banks using the contributions to prop up toxic junk.

6. Social Security — Social Security represents a $40 trillion unfunded liability. It is estimated that taxes must be raised substantially and benefits must be slashed to cover this gap. Through no fault of Social Security contributors and recipients, the government has completely mismanaged the program while other debts eat up any chance of actually making good on the entitlements promised to the working public. According to their “austerity” playbook, the International Monetary Fund (IMF) recommends that the U.S. squeeze Social Security to cover their ever-growing debts to banks.

7. Inflation – The Federal Reserve’s shadowy printing presses have created an estimated $23.7 trillion in credits, grants, loans and guarantees, and that is just the paper backed by taxpayers. The fractional reserve banking system is one where banks can create loans (money) based on a fraction of their reserves, which inherently weakens the strength of the dollar. Inflation ends up being a hidden tax on those who worked hard, played by the rules, and saved their pennies. You have been paying for this hidden tax ever since the Federal Reserve was created in 1913, coincidentally the same year the income tax was passed. To make matters worse, many experts now predict that America is headed toward hyperinflation. For an in-depth education on how money creation creates a tax on every dollar printed please watch The Money Masters and Money as Debt.

8. Commodity Prices – Banks use the commodity casino to manipulate food prices as another way to line their pockets and starve the public. There is a direct correlation between food costs and oil prices, so when they drive up oil on speculation, food tends to follow suit. During oil’s record run up to $147 per barrel in 2008, the price of rice tripled in six months. Between the ominous signs of food shortages and predictions of $200/bbl oil in the near future, you can expect to pay much more of your hard-earned crippled dollars to eat. Obviously, inflation — especially hyperinflation — also causes commodity prices to spike, since they trade in U.S. dollars.

9. Debt and Deficits – Banks make it easy for politicians to love credit as much as everyone else, only their shiny new toys are things like pork projects for their states, wars, and mandated private healthcare. You can almost see the commercial: “You can have all this today, get re-elected tomorrow, and in a decade your successor can figure out how to pay for it.” Recent reports show continued record deficits, while total debt and unfunded liabilities are figured to be $138 trillion — around ten times annual GDP. Furthermore, the U.S. national debt has already surpassed the IMF default threshold of 90% GDP, which will trigger austerity measures on the American public.

10. Wars – When the original reasons for wars don’t pan out, and the secondary reasons don’t add up, you can bet the real reason in the first place was money. Indeed, wars are the biggest moneymakers for the banks and the fastest way for them to imprison countries with debt. Wars have historically been manipulated by the banks funding both sides, much like they fund both political parties. In fact, some historians suggest that the American Civil War was actually a battle between Lincoln’s Greenback vs. the “oligarchy of high finance.” Ultimately, Lincoln was killed along with his Greenback and the private banking cartel ruled America once more.

All of this is leading to a loss of financial independence. The masters of manipulation — the money changers — have rigged the system from every angle and continue to loot all of us. We would be wise to learn about the history of money and banking in our economy, which is a compendium of booms and busts orchestrated by private banks. Wars, fiat currencies that lead to inflation, and obscure financial instruments are their tools of the trade to consolidate wealth at the top, while the foundation of the pyramid scheme — the hardworking taxpayers — are fleeced again and again.

Bank Failures in the U.S.

Banking System Collapse: Wake Up America, Your Banks Are Dying

June 7, 2010

EndoftheAmericanDream.com - U.S. banks are being shut down by federal regulators at a staggering pace this year, and yet most Americans seem completely oblivious to it. In fact, federal officials have already shut down 81 U.S. banks this year, which is about double the number that were shut down at this time last year.

So why aren't more people upset about this? Well, part of the reason is because the FDIC is doing it very, very quietly. The bank closings for each week are announced every Friday, which means that they pass through the news cycle over the weekend almost unnoticed. For example, banks in Nebraska, Mississippi and Illinois with total deposits of almost $2.3 billion were shut down by federal regulators on Friday.

So did you hear about it before now? If not, why not? Shouldn't the fact that we are experiencing a banking system collapse be headline news? But most Americans are more than happy to remain blissfully ignorant of what is going on. In fact, most Americans seem far more interested in what is happening on American Idol or Dancing With The Stars. But when the American Dream starts dying for tens of millions of Americans as the economy collapses perhaps more people will start to care.

So just how bad is the banking system crisis?

Well, FDIC Chairman Sheila Bair says that 775 banks (approximately ten percent of all banks in the United States) are now on the Federal Deposit Insurance Corporation's list of "problem" banks.

So should we be alarmed by that?

Well, there were only 252 U.S. banks on the FDIC's problem list at the end of 2008.

There were 702 U.S. banks on the FDIC's problem list at the end of 2009.

Now there are 775.

Do you know if your bank is on the verge of failing?

You might want to check.

But even if all of our banks fail the FDIC has plenty of money to cover our federally-insured banking accounts, don't they?

Unfortunately, they do not.

The FDIC is backing nearly 8,000 U.S. banks that have a total of $13 trillion in assets with a deposit insurance fund that is pretty close to flat broke.

It was recently reported that the FDIC's deposit insurance fund now has negative 20.7 billion dollars in it, which actually represents a slight improvement from the end of 2009. But the bank failures on Friday drained another $313.6 million from the FDIC’s deposit-insurance fund.

And the way things are trending, the banking crisis could get a whole lot worse?

Why?

Well, Americans are simply not doing a very good job of paying their bills.

During the first quarter of 2010, the total number of loans at U.S. banks that were at least three months past due increased for the 16th consecutive quarter.

16 quarters in a row.

Just let that sink in.

If that is not a trend, then what is?

Oh, but the U.S. government will never let the entire banking system fail, right?

Well, they won't let the "too big to fail" banks go under, we have seen that.

But the small and mid size banks?

They fall into the "not big enough to bail out" category.

And where in the world is the U.S. government going to get more money to bail anyone out?

The reality is that the U.S. government is now over 13 trillion dollars in debt.

To give you an idea of just how horrific that is, if you started spending a million dollars a day on the day that Christ was born, you still would not have spent a trillion dollars by now.

That is how big a trillion is.

But for this year alone it is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars.

So, yes, pretty much wherever you turn we are facing a financial nightmare.

What should we do about all this? Feel free to leave a comment with your thoughts....

Bank Failures in the U.S.

FDIC: 'Problem' Banks at 775

May 21, 2010

Wall Street Journal — A total of 775 banks, or one-tenth of all U.S. banks, were on the Federal Deposit Insurance Corp.'s list of "problem" institutions in the first quarter, as bad loans in the commercial real-estate market weighed on bank balance sheets.

Poor loan performance in other sectors also continued to hurt banks, with the total number of loans at least three months past due climbing for the 16th consecutive quarter, FDIC officials said in a briefing on Thursday.

"The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility," FDIC Chairman Sheila Bair said.

There were 702 on the FDIC's "problem" bank list at the end of 2009 and 252 at the end of 2008.

FDIC officials said they expected the number of failed banks to peak this year after climbing steadily over the past three years. Regulators have shut 72 banks so far this year, more than double the number closed by this time last year. Ms. Bair said regulators were preparing for a steady pace of additional closures through the end of the year. A total of 237 banks have failed since the beginning of 2008.

The failures continue to strain the FDIC's fund to protect consumer deposits, although officials signaled they were confident they had enough cash on hand to deal with the expected spate of failures, without having to assess new fees on the banking industry. The agency's deposit insurance fund stood at negative-$20.7 billion at the end of the first quarter, a slight improvement from the end of 2009.

"We have the necessary industry-funded resources to complete the cleanup," Ms. Bair said, in a reference to the fees that the agency assesses on banks for insuring their deposits.

Banks, squeezed by problem loans and the continued recession, responded by reducing their lending. The industry's total loan balances grew by 3% during the quarter, but the increase was due to accounting changes that required banks to bring securitized assets back onto their balance sheets. Without taking into account these accounting changes, lending would have declined for the seventh straight quarter, as banks cut back across most major lending categories.

"There is a lot of credit distress still in the mortgage-portfolio area," FDIC Chief Economist Richard Brown said at the FDIC briefing.

FDIC officials said they saw some signs for optimism. The total $18 billion, first-quarter profit reported by U.S. banks and thrifts was the highest since the first three months of 2008 and more than triple the profit recorded in the first quarter of last year. More than half of insured banks reported growth in net income during the quarter—the highest level in more than three years—and firms set aside less money to reserve for future losses.

The FDIC data suggested that the largest U.S. banks were faring better than their smaller rivals. The former enjoyed the largest year-over-year increase in earnings and saw the biggest reduction in loan-loss reserves, or the money they must set aside to account for future, expected losses on loans. Ms. Bair said the rate of decline in lending by larger banks also slowed in each of the past two quarters.

FDIC Insurance Fund Still $20 Billion in the Hole

May 21, 2010

USAWatchdog.com - While the stock market was beginning its 376 point plunge yesterday, the Federal Deposit Insurance Corporation was quietly putting the best face it could on a banking system in serious trouble. In a press release to update the status of the insurance fund, the big positive headline was, “FDIC-Insured Institutions Earned $18 Billion in the First Quarter of 2010–Net Income Highest in Two Years.” FDIC Chairman Sheila C. Bair said:

“There are encouraging signs in the first-quarter numbers . . . Industry earnings are up. More banks reported higher earnings, and fewer lost money.” (Click here for the complete FDIC press release.)

I can appreciate Chairman Bair’s positive attitude, but “encouraging signs” do not mean we have turned the corner and brighter days are ahead. The Deposit Insurance Fund, or DIF, has a negative balance of -$20.7 billion. That is just a $200 million improvement from the all time record deficit of -$20.9 billion at the end of 2009. I don’t see how these numbers are “encouraging.”

I talked with FDIC spokesman David Barr yesterday about the shortfall in the DIF. He said, “The FDIC is not broke.” It has an additional “$63 billion in cash.” He told me there is about $46 billion in three years of prepaid deposit insurance premiums and an additional $17 billion in cash for a grand total of $63 billion in “liquid resources” to close insolvent banks.

Let me get this straight–nearly 75% of the FDIC’s bailout money is from fees collected up front. What happens when the FDIC burns through that? Will they collect another 3 years of fees? ...

Bank Failures in the U.S.

Regulators Close Banks in 4 States - Bank Failures Up 100% Over 2009

May 7, 2010

ProblemBankList.com - ... With default rates continually increasing on commercial real estate and estimates of up to another 5 million residences heading towards foreclosure, it is not surprising that this year’s banking failures is expected to exceed last year’s total. In addition, the number of Problem Banks reported by the FDIC has expanded greatly. As of the latest report released by the FDIC there were 702 problem banks at December 31, 2009, up from 252 at the end of 2008. Total assets held by the troubled institutions is $402.8 billion, up from $159.0 billion at the end of 2008 ...

Senate Votes for Wall Street; Megabanks to Remain Behemoths

May 6, 2010

Huffington Post - A move to break up major Wall Street banks failed Thursday night by a vote of 61 to 33.

Three Republicans, Richard Shelby of Alabama, Tom Coburn of Oklahoma and John Ensign of Nevada, voted with 30 Democrats, including Senate Majority Leader Harry Reid of Nevada, in support of the provision. The author of the pending overall financial reform bill in the Senate, Banking Committee Chairman Christopher Dodd, voted against it.

The amendment, sponsored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.), would have required megabanks to be broken down in size and capped so that their individual failure would not bring down the entire system.

Under Brown-Kaufman, no bank could hold more than 10 percent of the total amount of insured deposits, and a limit would have been placed on liabilities of a single bank to two percent of GDP.

In practice, the amendment required the six biggest banks -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley -- to significantly scale down their size. It was touted as a way to end Too Big To Fail.

Though top Obama administration officials have not publicly opposed the amendment, its leading economists have opposed ending Too Big To Fail simply by breaking up the nation's financial behemoths. Austan Goolsbee and Larry Summers have both fought back against this idea, as has Treasury Secretary Timothy Geithner.

"This is certainly a defeat for those who are concerned about the dangers of financial concentration in this country," Kaufman said in a statement after the vote. "Some causes are worth fighting for, and for me, the concern about the risks 'too big to fail' banks pose to the American economy and people is deep and profound given the economic tragedy millions of American have endured. I believe the debate itself -- though failing to gain a majority of votes -- has helped to change attitudes about the degree of financial concentration and power these megabanks now represent."

The banks owned by the four largest financial firms in the U.S. collectively account for about 45 percent of all assets in the U.S. banking system, according to a HuffPost analysis of Federal Deposit Insurance Corporation data.

Those four megabanks collectively hold about $7.4 trillion in assets, according to the most recent regulatory filings with the Federal Reserve. That's equal to about 52 percent of the nation's estimated total output last year.

The top 12 banks in the U.S. control half the country's deposits. By comparison, it took 25 banks to accomplish this feat in 2003 and 42 banks in 1998, according to a Jan. 4 research note by Jason M. Goldberg of Barclays Capital.

There are 23 bank-holding companies in the U.S. with more than $100 billion in assets, according to Federal Reserve data.

Richard W. Fisher, president and chief executive of the Federal Reserve Bank of Dallas, is among a group of at least three current regional Fed presidents that have called for the nation's megabanks to be broken up, joining Kansas City Fed president Thomas M. Hoenig and St. Louis Fed president James Bullard.

Fisher has suggested a ceiling on bank assets placed at $100 billion.

"In the past two decades, the biggest banks have grown significantly bigger," Fisher said last month. "The average size of U.S. banks relative to gross domestic product has risen threefold. The share of industry assets for the 10 largest banks climbed from almost 25 percent in 1990 to almost 60 percent in 2009."

Of course, size is not the only danger -- Lehman Brothers, whose crash rocked the financial system, would have been under the size caps proposed by the amendment. To that end, the Brown-Kaufman amendment limited the amount of leverage an institution can take at about 16-to-1. Hoenig has suggested a 15-to-1 ratio. Leverage is the use of debt to increase assets without a corresponding increase in capital.

The amendment began as a wild longshot, backed by the junior senator from Ohio, Brown, and a longtime aide to Joe Biden, Kaufman, appointed to keep his seat warm for two years until the 2010 election. That the amendment gained as much support as it did is an indication of the depth of the populist anger.

Sen. Mark Warner (D-Va.) and Dodd of Connecticut spoke against the amendment.

Sen. Judd Gregg (R-N.H.) was indignant.

"I don't understand this Brown-Kaufman amendment. Basically, what it says is if you're successful...you're going to break them up? I mean, where does this stop? Do we take McDonald's on?"

"It really doesn't make any sense to me," he said.

After the vote, Kaufman defended the provision.

"I believe this idea was sound policy -- and I further believe that a mainstream consensus will continue to grow that these megabanks are too large, too complex and too internally conflicted to regulate successfully," he said, echoing a position voiced by regional Fed presidents, former top Fed officials, and former top bankers on Wall Street.

The Senate will resume voting on amendments to the legislation next week.

Glass-Steagall Wall Revisited

May 6, 2010

New York Times Blog, The Caucus - Senator Maria Cantwell of Washington, one of a cadre of Democrats intent on toughening up the big financial regulatory legislation, said on Thursday thay she would insist that the Senate vote on a proposal to reinstate the Glass-Steagall Act, which would re-establish a firewall between commercial banking and investment banking.

Ms. Cantwell and Senator John McCain, Republican of Arizona, have proposed an amendment to the regulatory bill that would reimpose the Glass-Steagall law, which Congress repealed in 1999.

In a brief interview outside the Senate chamber, Ms. Cantwell said that Democratic leaders had yet to agree to hold a vote on the amendment. More than 140 amendments have been submitted, but only a few of them are likely to be debated and given a roll call vote given limitations of the legislative calendar.

Ms. Cantwell said she did not think she would agree to end debate on the overall bill without a vote on her amendment.

When a reporter suggested to Ms. Cantwell that Senate leaders might try to limit the number of amendments like the Cantwell-McCain proposal that deal with the size of banks, Senator Barbara A. Mikulski, Democrat of Maryland, who also wants the regulatory bill to be tougher on Wall Street, interjected angrily.

“What is this — like landing slots at airports?” Ms. Mikulski snapped. “After we crashed and burned, there’s one landing slot?”

Liberal Democrats like Ms. Mikulski are determined to stop party leaders from rushing the regulatory bill and to push amendments that would impose even stricter rules on Wall Street.

Bank Failures in the U.S.

Commercial Real Estate Pushes $7.4 Billion in FDIC Losses in One Day

Hard to hear the CRE collapse with investment banks finally being called out in the court of public opinion. $3 trillion CRE market will keep Fridays busy for the FDIC.

May 2, 2010

mybudget360 - The $3 trillion commercial real estate market is still in a state of economic turmoil. Many people might have missed the big news on Friday given the massive spotlight on Goldman Sachs.

Friday, the FDIC closed down 7 banks at a stunning cost of $7.4 billion to the FDIC. As we have mentioned, the FDIC deposit insurance fund (DIF) is already depleted,yet the FDIC has front-loaded premiums to make sure they have a buffer to combat the continuing bank collapses.

The Friday bank failures will cost the FDIC the most since the collapse of IndyMac almost two years ago. IndyMac collapsed because of toxic residential loans including option ARMs. Many of the banks collapsing now are deep in the commercial real estate game and that is the next thing to go bust.

Commercial real estate prices have fallen a stunning 42 percent from their peak only a few years ago ...

Bank Failures in the U.S.

Bank Failures Accelerate, FDIC Sweats

Regulators shut down the bank owned by Illinois Treasurer Alexi Giannoulias' family on Friday, setting up an expected but daunting challenge in his bid to keep President Barack Obama's old Senate seat in Democratic hands. Broadway Bank, which was heavy into real estate loans and lost $75 million last year, had been given until Monday to raise about $85 million in new capital, but the Federal Deposit Insurance Corp. announced at the close of business Friday that Broadway was among seven banks, all in Illinois, that had failed... His Republican opponent, U.S. Rep. Mark Kirk, has made the bank's finances a central issue in the Senate race. "While years of risky lending schemes, hot money investments and loans to organized crime led to today's failure, it's a sad day for Broadway Bank employees who may lose their jobs due to Mr. Giannoulias' reckless business practices," Kirk spokeswoman Kirsten Kukowski said in a statement Friday night... Giannoulias' family could collect millions in tax refunds by writing off Broadway Bank's losses. Giannoulias said he wouldn't take advantage of a special provision made available in the stimulus bill for writing off businesses losses. He couldn't say if others in his family would, but said his family "will be taking a massive financial loss." - FDIC Shuts Down Seven Banks, All in Illlinois, The Associated Press, April 23, 2010

April 20, 2010

247walls - Bank closings hit eight last week bringing the total to 48 for the year. The rate of the failures is greater than in the previous two years. FDIC chief Sheila C. Bair recently said that she expected bank shutterings to peak in 2010.

Some of the closures could have been foreseen and perhaps avoided according to the U.S. Treasury Department’s inspector general Eric Thorson. Testifying before Congress last week, he said:

"We have found that time and again, the regulators for which we have oversight, the Office of Thrift Supervision (OTS) and the Office of Comptroller of the Currency (OCC), frequently identified the early warning signs…that could have at least minimized, if not prevented, the losses associated with the financial institutions’ failure but did not take sufficient corrective action soon enough to do so," according to Reuters.

The FDIC still may not have enough money to cover the failures. This is despite the fact that it has already required the institutions that it insures to pay their dues through 2012 when the agency ran low on money in September 2009. The only recourse the FDIC had otherwise was to go to the Treasury Department for money. The prepayments brought the FDIC $45 billion.

Now, however, the pace of failures is on a much steeper curve than it was last year.
After the $45 billion came in Bair said that the total cost to fund failed banks could rise to $100 billion between 2009 and 2013. The FDIC cannot go to its member banks to get them to prepay fees again, and that means the taxpayer is the only source of funds to handle the costs of shuttering these financial firms. Treasury Secretary Tim Geithner recently said that the government will only lose $89 billion on the TARP, much below the $356 billion Congress estimated just a year ago.

Geithner spoke too soon. The banking crisis is not over at all. The problem has just moved from megabanks to smaller institutions.

FDIC Chief Expects 2010 Bank Failures to Exceed 2009

January 26, 2010

South Florida Business Journal - Reacting to President Barack Obama’s recent proposal to impose limits on the size and scope of banks, Federal Deposit Insurance Corp. Chairwoman Sheila Bair said during a visit to Miami on Monday that institutions should wall off their non-bank financial activities from their insured deposits.

On Thursday, Obama said he wants to prevent financial institutions that own a bank from also owning, investing in or sponsoring a hedge fund, private equity fund, or proprietary trading operations that are not related to serving their customers. The president also said that large financial firms could not increase their national market share of assets other than insured deposits beyond a certain point.

Just before speaking to the Florida Bankers Association on Monday night, Bair said she hasn’t seen enough details of Obama’s proposal to say whether she supports it or not. She said financial institutions could do a better job of walling off their FDIC-insured banks from some of their more risky financial activities so the banks aren’t hurt by losses in those areas.

“The bulk of these problems actually occurred outside the insured deposit banks," Bair said. "Just look at Lehman Bros. and AIG."

She noted that large institutions should have a self-liquidation plan filed with regulators in case they need to be wound down.

Bair, who plans to leave office after her term expires next year, said the number of bank failures this year should exceed the 140 failures that occurred in 2009. Fourteen of those bank failures occurred in Florida. The FDIC has projected that bank failures would cost its insurance fund about $100 billion from 2009 through 2013.

Since some of the troubled banks are fairly small, Bair said the FDIC might package them to attract more bidders.

The FDIC reported 522 banks holding $345.9 billion in assets on its “problem list” as of Sept. 30. Bair did not know how many were in Florida, but acknowledged that this state has been hit harder than many others.

“In any of the boom markets [of the country], they suffer the most when the boom becomes a bust,” Bair said. “But, there are a couple of positive trends in Florida.”

Bair pointed to increased home sales volume and slightly better employment numbers as reasons Florida might fare better than other former boom states this year. On Monday, Florida Realtors reported statewide existing home sales rose 31 percent, year-over-year, in 2009.

Just as Florida’s economy is hurting more than in most states, so are its banks. Florida is home to 15 banks considered “undercapitalized” by FDIC capital ratio guidelines based on their Sept. 30 reports.

On Friday, Miami-based Premier American Bank became the first Florida bank to fail this year. This was the first time that a “shelf charter” set up by a private equity fund specifically to buy a failed bank won a bid. Bair noted that these private equity deals have special conditions: They have heightened capital requirements at the bank and they can’t sell the institution for three years. They must follow the same community reinvestment rules as other banks, she noted.

Bair said the FDIC has increased the frequency of bank examinations and it has placed an increased emphasis in analyzing whether banks have properly reserved to cover future loan losses. In December, the FDIC said it would increase its staffing level to 8,653 this year from 7,010 in 2009.

“There are some sad cases of long-standing community banks that had to be closed,” Bair said. “It’s not a happy thing to close a bank, but we’ve learned the hard way that if you put it off, it will only cost more later.”

Bank Failures in the U.S.

Healthy Banks Gear Up to Buy Weaker Rivals

March 24, 2010

breakingviews.com - As the list of America’s problem banks balloons, healthy institutions are gearing up to capitalize on the misfortune of others.

Just look at First Interstate BancSystem, the first bank to begin an initial public offering since before the financial crisis. It may use the proceeds to pick off failed rivals. The bank, based in Montana, raised about $130 million of capital after fees. While not a big public offering, it is rare — no other bank has done so since 2007 — and shows that distress in the sector may be creating opportunities for the healthy.

With the Federal Deposit Insurance Corporation expecting at least as many bank seizures this year as last year’s 140, the supply of carcasses seems endless for canny vultures.

First Interstate’s chief executive, Lyle R. Knight, salivated over the prospect during a recent investor presentation, saying he was “particularly excited” about F.D.I.C.-assisted transactions. And after the public offering raised his bank’s tangible common equity 30 percent, to 6.4 percent of tangible assets, the 42-year-old family-owned lender has fresh capital to pounce.

It may not seem like a lot of firepower. But First Interstate’s low-risk, low-cost financing model, combined with its conservative approach to lending, means it probably has plenty of room to keep regulators comfortable. The IRA Bank Monitor, which rates all F.D.I.C.-insured institutions, grades the bank “A plus” based on low loan default rates and high risk-adjusted returns on capital, among other metrics.

True, at $14.50 a share, the offering was priced near the low end of the range and below the preoffering book value of $16.73 a share. The discount could reflect the bank’s relatively high level of good will and its Class B shares, which give control to the bank’s family owners. But the 8.3 percent gain on the first day of trading means investors see some opportunity.

First Interstate may appeal to those interested in the bank failure trade. Shares of other publicly listed institutions that bought collapsed banks from the F.D.I.C. also have jumped. Those of Ameris Bancorp, for one, have surged 86 percent since it announced a second acquisition of a banking carcass in November. To the victors go the spoils.

Bank Failures in the U.S.

Failed Banks May Get Pension-Fund Backing as FDIC Seeks Cash

March 8, 2010

Bloomberg - The Federal Deposit Insurance Corp. is trying to encourage public retirement funds that control more than $2 trillion to buy all or part of failed lenders, taking a more direct role in propping up the banking system, said people briefed on the matter.

Direct investments may allow funds such as those in Oregon, New Jersey and California to cut fees for private-equity managers, and the agency to get better prices for distressed assets, the people said. They declined to be identified because talks with regulators are confidential.

Oregon’s retirement fund may contribute $100 million as regulators seek “the support of state pension funds to solve the crisis surrounding ongoing bank failures,” Jay Fewel, a senior investment officer at the Oregon State Treasury, said in a presentation at the fund’s Feb. 24 meeting. New Jersey’s fund may also participate, said Orin Kramer, chairman of New Jersey’s State Investment Council.

The FDIC shuttered 140 lenders last year and expects the tally may be higher in 2010. Regulators have avoided signing up private-equity firms as rescuers on concern that they might take too much risk. Pension funds, whose 100 largest members manage $2.4 trillion, could provide capital to acquire deposits and outstanding loans from collapsed banks, according to the people.

Welcome Mat

“The FDIC is constantly looking at structures where we can get the greatest opportunity to tap into capital that we have not had the success reaching through previous disposition methods,” FDIC spokeswoman Michele Heller said in an e-mailed statement. “We welcome and work with all investors.”

Current rules don’t prohibit pension funds from buying failed banks. Until now, they have typically chosen to invest through private-equity firms using limited partnerships, which gives pension funds little to no control over the day-to-day management of the investments. They also pay management fees levied on the amount of money committed as well as a percentage of any profit.

“We’ve been examining a broad range of alternatives to take advantage of what I believe are attractive transactions coming out of the FDIC,” said New Jersey’s Kramer.

The state pension system faced a shortfall of about $46 billion as of last year because of investment declines and a failure to make full contributions, according to annual financial reports ...

Calpers Presentation

After the credit crisis ate into private-equity returns, pension managers started looking for ways to trim fees and boost returns. The California Public Employees’ Retirement System, the largest U.S. public pension fund, said in a Feb. 16 presentation that one of its goals is to increase its “co-investments” in transactions alongside money managers. That kind of structure could give the pension fund an actual stake in firms purchased, rather than the private-equity firm’s buyout fund, according to the people.

Known as Calpers, the pension fund plans to “explore unique structures with select general partners,” according to the presentation. The fund’s investment portfolio was valued at $203.3 billion as of Dec. 31, according to the Calpers Web site. Spokesman Brad Pacheco didn’t respond to a request for comment.

Regulators have been debating how much leeway to give private buyers of failed banks on concern that they’re more likely to put federally insured deposits at risk, or will look to flip the bank for a quick profit.

Longer Horizon

Private-equity managed funds typically promise they’ll return funds to their investors in about 10 years. Pension funds are aiming to fund retirements that are decades away and thus can hold on to investments longer, which would help ease the FDIC’s concern, said one of the people.

FDIC guarantees may soften the risk of investing public pension money in distressed banks, Whalen said. When the FDIC sells a failed bank, it typically shares a portion of the loan losses.

“Financially sophisticated people do not assume that banks have recognized all of their real estate losses,” Kramer said, adding that it can still be a bad deal if a buyer overpays for a deposit franchise or if loans perform worse than expected. “We are in the early innings for commercial real estate.”

FDIC Hits Record "Default" Level As Deposit Insurance Fund Plunges By $12.7 Billion To NEGATIVE 20.9 Billion

February 23, 2010

Zero Hedge - The U.S. banking industry continued to struggle in the fourth quarter, as the number of banks on the brink of failure continued to rise and the government’s fund to protect deposits fell sharply into the red.

The Federal Deposit Insurance Corp. said Tuesday that its deposit-insurance fund fell to $20.9 billion at the end of 2009, a $12.6 billion drop in the final three months of the year, as bank failures continued at a pace not seen since the savings and loan crisis. The fund's reserve ratio was -0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund.

The deposit insurance fund is unlikely to soon see a respite from a decline in the number of failing banks: The FDIC said the number of banks on its "problem" list climbed to 702 at the end of 2009 from 552 at the end of September and 252 at the end of 2008. The number of banks on the list, which have combined assets of $402.8 billion, is the highest since June 1993.

"The continued rise in loan losses and troubled assets points to further pressure on earnings," FDIC Chairman Sheila Bair said in a statement. "The growth in the numbers and assets of institutions on our 'Problem List' points to a likely rise in the number of failures."

Industry indicators deteriorated nearly across the board. The FDIC said loan losses for U.S. banks climbed for the 12th straight quarter, while the total loan balances for U.S. banks continued to fall. The agency said the quarterly net charge-off rate and the total number of loans at least three months past due both were at the highest level ever recorded in the 26 years the data have been collected.

Net charge-offs of troubled loans occurred across all major loan categories, led by a $3.3 billion increase in residential mortgage loans. The FDIC said U.S. banks' coverage ratio--reserves divided by the amount of noncurrent loans--fell to 58.1% in the fourth quarter from 60.1% in the third quarter.

The FDIC did cite some reasons for optimism. The banking industry was able to report a modest profit of $914 million in the fourth quarter, compared with a record loss of $37.8 billion in the final three months of 2008. And while the largest banks were the beneficiaries of much of the earnings improvement, the agency said more than half of FDIC-insured banks saw a year-over-year improvement in their net income.

Banks' profits were helped by improvements in trading revenue, which totaled $2.8 billion the fourth quarter, and servicing income, which represented a gain of $8.0 billion. The FDIC also said that more than half of all banks reported higher net interest margins in the fourth quarter compared with third-quarter levels.

"Resolving these credit market dislocations will take time," Bair said, describing banks as "bumping along the bottom of the credit cycle."

Here is the full abysmal Q4 FDIC report.

Bring Back Glass-Steagall Curbs for Banks

March 2, 2010

CNBC - The government should restrict bank actitivities far more than proposed under the so-called Volcker plan, which would prevent banks from investing for their own accounts, John Bogle, founder of mutual fund giant Vanguard Group, told CNBC on Tuesday.

“I would be cheering for the return of the Glass-Steagall Act,” Bogle said, referring to the Depression-era law that banned banks from owning brokerage firms and other financial firms, among other restrictions. “It’s pretty much common sense that if you’re in the business of taking deposits, you shouldn’t be speculating on your balance sheet.”

Bogle also called for higher capital requirements for banks and stringency on the kinds of assets allowed on balance sheets. Meanwhile, the concentration of bank assets due to the rise of mergers over the last two years, is leading the country in the wrong direction, he said.

The Volcker plan, named after former Federal Reserve Chairman and current Obama adviser Paul Volcker, is intended to curb the market speculation by banks that helped trigger the recent financial crisis. While the plan gained initial support, it has been watered down somewhat in negotiations over a financial reform bill being hammered out in the Senate Banking Committee.

“It takes a powerful political force to take steps that are necessary, and I don’t see anybody, any Congress in a position to do it,” Bogle said. “We pretty much have a hung Congress because the Democrats don’t have much discipline in the House to enforce their will. And in the Senate that 60 votes becomes 59 and that stymies everything. So we go to the lowest common denominator time after time without taking the real steps, or the big steps.”

Bogle likes the idea of a financial consumer protection agency, whether it's an independent unit of the Fed or it's own entity:

"We do need the consumer protection; no question."

Under the latest version of the financial overhaul bill, the agency would be part of the Federal Reserve but would include autonomous rule-writing authority.

Bank Failures in the U.S.

Banks Report Small Profit But 'Problem' List Jumps

February 23, 2010

AP - The number of U.S. banks considered troubled jumped to more than 700 last quarter even as the industry squeezed out a small profit in a recovering economy.

And bank lending last year posted the steepest drop since World War II.

The snapshot for October-December 2009 issued Tuesday by the Federal Deposit Insurance Corp. offered a tale of two banking sectors. On the one hand, big banks have been gradually recovering, many of them with help from federal bailout money. On the other, small and mid-sized institutions continue to suffer distress that will likely persist in the coming years.

Loan losses and bank failures are likely to continue to haunt the industry as regional banks succumb to soured commercial real estate loans.

Banks have tightened their lending standards. The volume of bank loans dropped by $587.3 billion, or 7.5 percent, last year from 2008 -- the biggest full-year decline since 1942, according to the FDIC.

Big banks were responsible for 90 percent of the fourth-quarter decline in loan balances, which totaled $128.8 billion. That was up from 74 percent in the third quarter of 2009.

Regional banks are especially vulnerable to losses on loans for commercial real estate, like stores and office complexes. These loans make up a disproportionate share of their business. Losses are growing as buildings sit vacant and builders default on their loans.

Such defaults could escalate the wave of bank failures that numbered 45 in the fourth quarter and totaled 140 last year. That was the highest annual total since 1992, at the peak of the savings-and-loan crisis. So far this year, 20 banks have failed. FDIC Chairman Sheila Bair said that pace likely will pick up this year.

Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report by the Congressional Oversight Panel, which monitors the government's efforts to stabilize the financial system.

The report also said that on nearly half of all commercial real estate loans, the borrowers owe more than the property is worth, and the biggest loan losses are expected for 2011 and beyond.

The FDIC said banks essentially broke even in the fourth quarter. They earned $914 million, compared with a $37.8 billion loss in the fourth quarter of 2008, at the height of the financial crisis. Still, nearly one in every three banks reported a net loss for the latest quarter.

Most of the improvement in earnings was due to the largest banks. Yet for the first time in three years, more than half the 8,000 or so federally insured banks and thrifts reported higher income compared with the year-earlier quarter.

"Consistent with a recovering economy, we saw signs of improvement in industry performance" in the fourth quarter, FDIC Chairman Sheila Bair said at a news conference. She noted, though, that a recovery in the banking industry usually lags behind an economic rebound.

"It's not that this was a strong quarter," Bair said. "It's simply that everything was so bad a year ago."

The increase in the number of banks on the FDIC's confidential "problem" list -- from 552 in the third quarter to 702 last quarter -- "points to a likely rise in the number of failures," Bair said. The combined assets of the 702 banks were $402.8 billion, up from $345.9 billion for problem banks in the third quarter.

Troubled loans continued to increase. Loan charge-offs -- the debt that banks don't expect to be repaid -- vaulted to $53 billion from $38.6 billion in the fourth quarter of 2008.

"Banks are increasing their capital levels, and the industry continues to set aside strong reserves to cover problem loans created by the high levels of unemployment and business failures," James Chessen, chief economist of the American Bankers Association, said in a statement.

He said U.S. banks overall have set aside reserves against potential losses of about $1.7 trillion. Chessen, like FDIC officials, stressed that 95 percent of banks are considered by regulators to be well-capitalized.

Bank failures pushed the FDIC's deposit insurance fund into the red last year. It was $20.9 billion in deficit as of Dec. 31, the agency reported -- $12.6 billion deeper than the deficit three months earlier.

Bair said the fund is expected to bottom out this year. The FDIC expects further bank failures to cost the fund around $100 billion through 2013.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to help replenish the insurance fund.

The FDIC's reserves of cash and securities set aside to cover losses from failures jumped to $66 billion as of Dec. 31 from $23 billion at the end of September. Depositors' money -- insured up to $250,000 per account -- isn't at risk. The FDIC is backed by the government.

For all of 2009, banks earned $12.5 billion, up from $4.5 billion in 2008. Last year's earnings represented a return on assets of 0.09 percent, up from 0.03 percent in 2008.

Bank Failures in the U.S.

Massive Bank Failures Due, Says Oversight Panel

February 25, 2010

Epoch Times - Close to 3,000 banks are currently classified as having a risky concentration of commercial real estate loans, according to a recent report by the Congressional Oversight Panel (COP). All of them are small to mid-sized banks, already weakened by the financial crisis.

The COP is “deeply concerned” that commercial real estate losses could jeopardize the stability of these banks and the damage will contribute to prolonged weakness throughout the economy, according to chair Elizabeth Warren.

About $1.4 trillion in commercial real estate loans are due for refinancing between now and 2014.

“In today’s market, many applications will be turned down,” Ms. Warren said on a video posted on COP's Web site.

Property values have fallen 40 percent on average, and banks are unwilling to refinance; many wanting a lower loan-to-value ratio, which will trigger lot of foreclosures.

“Some loans were flat-out reckless when they were made and never should have been financed,” Warren said. Banks could suffer losses of up to $200 to $300 billion, the report said.

“A big enough wave of commercial mortgage defaults would trigger economic damage that would touch the lives of every American,” Warren said.

Empty offices, empty hotels, and empty stores could lead directly to job losses, and banks could fear lending. The largest loan losses are projected for 2011 and beyond. But the stress tests conducted on big Wall Street banks last year examined their stability only through 2010, the COP report states.

“Even more significantly, community banks tend to hold much greater concentrations of commercial real estate than big Wall St. banks. But community banks never underwent any stress tests at all,” Warren said.

Nearly 3,000 community banks (that’s nearly 40 percent of all banks in the United States), have a very high proportion of commercial real estate on their books and are at particular risk of being overwhelmed.

These are the same banks that provide loans to small businesses that create jobs and boost productivity.

“If hundreds of community banks go under, the effect could be to dump sand in the gears of our economic recovery,” Warren said.

Bailout Panel Cites Commercial Real Estate Danger

February 11, 2010

AP - Over the next several years, failed commercial real estate loans could litter American cities with empty stores and office complexes, cause hundreds of bank failures and weaken the economy, a watchdog report says.

Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report released Thursday by the Congressional Oversight Panel. The panel monitors the government's efforts to stabilize the financial system.

The report says the defaults could lead to reduced lending and cause the eviction of families from rental properties. Bank failures also could contribute to job losses and hurt the economic recovery.

Smaller banks are more vulnerable to the losses than their larger Wall Street counterparts. That's because commercial real estate makes up a larger portion of their portfolio.

The Federal Deposit Insurance Corp., which manages bank failures and insures deposits, is under stress that will intensify over the next few years, panel chairwoman Elizabeth Warren said in a call with reporters.

Small- and mid-size banks have been failing at the fastest rate since the savings and loan crisis of the 1980s and 1990s. The failures are due mostly to bad loans they made for commercial projects.

Banks often lent too much for land and buildings whose prices were inflated by a real estate bubble. They also relied on rosy assumptions about the profitability of retail and office projects and did not consider the possibility of a severe recession.

Commercial property values have fallen more than 40 percent in the past three years, the report notes.

Some have been unable to pay the loans. Others have stopped paying because they now owe more than the properties are worth. Losses are mounting for banks, more of which will close. That could spell trouble for the economic recovery, said Warren, a Harvard law professor.

"If hundreds more community banks go under, the effect would be to ... dump sand in the gears of the economic recovery," she said.

Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.

The report attributes the looming crisis to failures of bank management and supervision. It says banks made loans based on property values inflated by the real estate bubble. They sometimes acted carelessly "in a rush for profit," the report says. Banks and their regulators failed to consider the possibility of reduced consumer demand from a severe recession, the panel says.

The panel criticizes the Treasury Department and bank supervisors for not putting smaller banks through "stress tests" like those done last year on the nation's 19 largest banks. Warren notes that Treasury Secretary Timothy Geithner resisted calls to conduct public stress tests of smaller banks.

The Treasury Department referred to comments by Geithner that bank regulators routinely conduct such assestments confidentially.

Warren also noted that last year's tests gauged banks' strength only through 2010. The commercial real estate threat looms largest in 2011 and beyond ...

What Isn’t Happening with the $3 Trillion Commercial Real Estate Market: Loans Falling and Vacancy Rates at Record Heights at 10 Percent

Bank Failures in the U.S.

Citibank Controversy Puts Dubious FDIC Guarantee Back in the Spotlight

February 25, 2010

Prison Planet.com - The recent controversy surrounding Citibank’s advisory to its customers reserving the right to impose a 7 day restriction on withdrawals from their accounts is a stark reminder of the vulnerability of the fractional reserve banking system and the FDIC’s shaky guarantee that it can insure deposits in the event of a bank run.

Citibank’s notice (see next post) informing its customers of the right to request 7 days notice before funds can be withdrawn from all checking, savings and money market accounts was necessary to ensure compliance with Federal Reserve regulations.

Fox News Business reported on the “little known regulation” yesterday in a piece by Darryl R. Isherwood.

“The requirement is part of Regulation D of the Securities Act of 1933. It applies to all accounts classified as Negotiable Order of Withdrawal [NOW] accounts – basically interest-bearing checking and savings accounts held by individuals and non-profits. Banks are not required to hold reserves in place to cover NOW accounts, so the rule prevents a run on withdrawals for which there are no reserves,” states the report.

For those still unaware of the fact, it may come as a shock that your bank has no reserves with which to cover withdrawals if there was a sudden loss of confidence and a good old run on the bank as has happened on several occasions over the last two years in both the UK and the U.S.

“According to a spokeswoman, the bank changed the status of the bulk of its consumer checking accounts last year to take advantage of an FDIC policy to provide unlimited account protection to certain types of accounts. When Citi transferred the accounts back to their original status, it triggered the notification of the seven-day requirement,” states the report.

Although the FDIC claims it guarantees insurance to the tune of $250,000 per depositor per bank, the rising number of bank failures and those placed on the “problem list” has stoked fears that the tank is running dry.

Alarmingly, The Federal Deposit Insurance Corp. only has about $50 billion to “insure” about $1 trillion in assets across the nation’s financial institutions. This was even admitted in a Yahoo.com article shortly after the collapse of Lehman Brothers in 2008. When Americans realize the fact that banks are “going to run out of money”, the article nonchalantly stated, a run on the banks will accelerate.

On Tuesday the FDIC announced that its deposit insurance fund suffered a whopping $12.6 billion drop in the final three months of 2009 due to accelerating bank closures. “The fund’s reserve ratio was -0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund,” according to the announcement.

FInancial experts have predicted that the failure of 300-500 U.S. banks would absorb all of the FDIC’s insurance funds. This is precisely why people are worried about banks imposing delays on access to their savings, not as a result of some Internet conspiracy run amok, as the Fox News Business article implies, but as a consequence of the true magnitude of what could plausibly happen in a worst case scenario.

If the U.S. dollar was to suffer a sudden and drastic collapse as innumerable financial experts have predicted and hyperinflation ensued, then being unable to access your money or swap it for another currency or commodity for a period of 7 days could be the difference between preserving your life savings or having them rendered practically worthless.

Imagine if the United States were to suffer a Weimar Republic style collapse and the cost of a pound of butter soared to a million dollars. Generations of wealth could be wiped out overnight if people were unable to access their savings.

It’s no surprise therefore in the current climate that investors have flocked to physical gold and silver bullion not only as a means of preserving their wealth, but ensuring that it actually exists in the first place. With banks affording themselves the power to loan out increasing multiples of what they hold at any one time while the money supply is artificially doubled, being reminded of the fact that our nest eggs consist of nothing more than numbers on a computer screen which can be withheld from us at the discretion of the banks isn’t exactly going to restore trust in traditional methods of saving.

Citigroup Warns Customers It May Refuse to Allow Withdrawals

February 19, 2010

Business Insider - The image of banks locking their doors to keep customers from making withdrawals during a bank run is what immediately came to mind when we heard that Citigroup was telling customers it has the right to prevent any withdrawals from checking accounts for seven days.

"Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change," Citigroup said on statements received by customers all over the country.

What's going on? It seems that this is something of an error. The seven day notice policy only applies to customers in Texas, Ira Stoll reports at The Future of Capitalism. It was accidentally included on customer statements nationwide.

"Whatever the explanation, it doesn't exactly inspire confidence in Citi," Stoll writes. "But it's hard to believe a bank would be sending out a notice like that on its statements."