By the end of the recession, there will be approximately 1,000 bank failures. Does this sound extreme? It should but the numbers don’t cover the entire story. Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed. Last week, 7 banks failed. At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up. The FDIC is in a precarious situation. The Deposit Insurance Fund (DIF) is technically speaking, broke. They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long. The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad.
Here is the actual weekly trend of bank failures:
The trend is unmistakable. The worse offending states are as follows:
These four states make up 50 percent of all bank failures since the crisis started. The current policy and momentum seems to be with banks ignoring balance sheet problems until they are no longer able to hide the dirt. The too big to fail banks have already been chosen by the government and the rest will need to deal with the new economic landscape. The FDIC, the seal of confidence and strength dates back to the Great Depression:
It is a game of confidence that we have increased the actual amount of deposit insurance to $250,000 from $100,000 at a time when the actual insurance fund is negative. You would think that something this problematic will cause for a sense of urgency but the government is giving the FDIC until 2020 to get this fixed:
“WASHINGTON (MNI) – With the passage of the Dodd-Frank Act, the Federal Deposit Insurance Corp. will now have until the end of September 2020 to bring its reserve ratio to the statutory minimum of 1.35%, rather that 1.15%.
This is more than the eight years provided under the current Restoration Plan that would have given the FDIC only until the end of 2016 to bring its reserve ratio to 1.15%, an FDIC spokesman told Market News International Wednesday.
The latest projections presented at a Board meeting in June, indicated agency did not expect to meet that deadline.”
While the government gives the FDIC until 2020 to get their house in order, this is how the deposit insurance fund is looking:
This is the third consecutive quarter in the absolute red. The banking system is starting to look like an imploding ponzi scheme and Wall Street is capitalizing on this vulnerability. How? If you were a big time investor would you invest in a too big to fail bank that may be performing poorly but has full government support or a smaller well run bank that has no support at all? The incentive is not necessarily with the best performing and that is usually a staple of a well run capitalist system. We are not operating in a capitalist system but a corporate oligarchy based on political connections between Wall Street and D.C. This kind of system has been prevalent for decades now and crosses both political parties.
As the FDIC digs deeper into a hole, the number of problem institutions grows:
Keep in mind that the above list also fails to catch many of banks that do fail. It isn’t exhaustive. So even just looking at the above, we already have the 1,000 banks that will fail. And the problem of course is how the current banking system is structured. We have close to 8,000 FDIC insured banks but in reality, a very few control the bulk of the assets:
The top 4 banks of Bank of America, JP Morgan Chase, Wells Fargo, and Citibank make up 55 percent of all banking assets. Then there is another tier of roughly 100 banks that eats up another 20 to 25 percent of assets. So you have some 7,800 banks basically fighting for the remaining scraps. The FDIC is in deep trouble going forward and this means we are in deep trouble. The taxpayer is on the hook for the bill. The U.S. Treasury already extended a lifeline of $500 billion to the FDIC “in case” they need the money. Looking at the above data do you think they are going to use that lifeline? It is only a matter of time.