Wednesday, August 27, 2008

The FDIC Wants in on the Bailout Action...

Yesterday we took a quick look at the increase in "problem banks". Below, we go further presenting historical data for both problem and failed banks going back to 1990 along with the elephant in the room... an underfunded FDIC.

As can be seen below, the "Problem List" has been highly correlated to the number of bank failures (failures have occurred at ~ 1/10th the number of problem banks).

Now to the bigger issue. We've already had a bank bailout, we detailed the request of the auto industry to have an auto bailout, Fannie / Freddie are bound to be bailed out any day now, and now the FDIC is looking to get in on the action. Per Ben Bittrolff (i.e. The Financial Ninja):
FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

With a fund balance of ~$45 billion and new projections of the IndyMac bailout costing a revised $8.9B or 20% of that total, I expect this to become bigger news as the Holiday weekend distraction fades...

Source: FDIC (hat tip to Reddit's Sharpsight2)

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