The announcement yesterday by the FDIC that the Deposit Insurance Fund dropped to $10.4 billion is a little suspicious based on the 1.94 balance reduction/estimated losses ratio for the previous five quarters, which suddenly improved drastically to 1.2x.
Knowing what the special assessment to member banks would bring in, it seems a little odd that they are now much better at their estimates at the time when they were at a very high level of scrutiny, as consumers were watching closely in the midst of concerns over their deposits.
Either way it doesn’t matter, as the FDIC continues to move toward going broke, even with the announcement there will be another special assessment in the third quarter.
The problem with this is those banks that are surviving, if not thriving, are being financially pressured even more by having to turn over money to the FDIC which could have been used for better purposes like lending.
This of course reveals the underlying difficulty in the challenging circumstances, which seem to go around in a circle at this time with no place to get off the merry-go-round.
In response, the Federal Deposit Insurance Corporation did ease up some on its investment requirements by private equity firms, and is also looking to foreign banks like Spanish-owned BBVA Compass, which recently acquired Guaranty Bank, as they seek to enlarge their presence in the U.S.
Along with the alleged $10.4 billion balance reported on Thursday, the FDIC has also secured another $32 billion in reserves for expected losses over the next year. There is also a $500 billion credit line with the Treasury in case of massive failures; which is a very real possibility and potential scenario.
