Five Bank Failures and the Deposit Insurance Fund

by: Rolfe Winkler, CFA

Five bank failures tonight, bringing the total for the year to 77. See below for a video clip and for details about the Deposit Insurance Fund’s resources.

#73

  • Failed Bank: Dwelling House S&L, Pittsburgh PA
  • Acquiring Bank: PNC Bank, Pittsburgh PA
  • Vitals: At 3/31/09, assets of $13.4 million, deposits of $13.8 million
  • Estimated DIF damage: $6.8 million

#74

  • Failed Bank: Colonial Bank, Montgomery AL
  • Acquiring Bank: BB&T, Winston-Salem NC
  • Vitals: At 6/30/09, assets of $25 billion, deposits of $20 billion
  • Estimated DIF damage: $2.8 billion

#75

  • Failed Bank: Union Bank, Gilbert AZ
  • Acquiring Bank: MidFirst Bank, Oklahoma City, OK
  • Vitals: At 6/12/09, assets of $124 million, deposits of $112 million
  • Estimated DIF damage: $61 million

#76

  • Failed Bank: Community Bank of Arizona, Phoenix AZ
  • Acquiring Bank: MidFirst Bank, Oklahoma City, OK
  • Vitals: At 6/30/09, assets of $159 million, deposits of $144 million
  • Estimated DIF damage: $26 million

#77

  • Failed Bank: Community Bank of Nevada, Las Vegas
  • Acquiring Bank: None. FDIC establishes “Deposit Insurance Bank” to resolve this failure.
  • Vitals: At 6/30/09, assets of $1.52 billion, deposits of $1.38 billion
  • Estimated DIF damage: $782 million

DIF Update

Now’s as good a time as any to update vital statistics for the Deposit Insurance Fund.

At 3/31/09, the DIF had $41.5 billion worth of reserves to handle bank failures, a total that included $28.5 billion of reserves for future failures along with the $13.0 billion balance remaining in the fund after subtracting liabilities from assets.

At the end of Q2, FDIC charged banks a special assessment that they estimated would raise an additional $5.6 billion.

Since the end of Q1, there have been 51 bank failures, which in total the FDIC estimates will cost the DIF $16.1 billion. This includes the bank failures above.

Loosely figured, that puts the DIF’s resources at $31.0 billion.

The next big tests to come will be Corus and Guaranty, with $7.2 billion and $11.7 billion worth of deposits respectively.

Just so folks are clear, when a bank fails, there isn’t a 100% loss rate on deposits. For example, though Colonial had $20 billion of deposits, FDIC estimates it will only cost the DIF $2.8 billion. That’s because the bank has significant assets that FDIC will be able to sell.

The bottom line, though, is that the DIF is in tough shape. It’s quite possible FDIC will have to draw down a portion of its credit line at Treasury before this banking crisis is over.

What are the total deposits backed by the DIF? Officially, $4.8 trillion. But if you include “temporary” increases in deposit insurance limits —- individual accounts up to $250,000, and transaction accounts unlimited —- the total jumps to $6.3 trillion.