Friday's Bank Failures, and DIF Details

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Another big one bites the dust. Guaranty is the 81st failure of the year. Plus two more in Georgia.

Below, Friday evening’s failure news, I’ve got more detail about the Deposit Insurance Fund, including an interesting tidbit about why FDIC collected so little in premiums from 1996-2006.


  • Failed Bank: eBank, Atlanta GA
  • Acquirer: Stearns Bank NA, St. Cloud MN
  • Vitals: As of 7/10/09 assets of $143 million, deposits of $130 million
  • DIF Damage: $63 million


  • Failed Bank: First Coweta, Newnan GA
  • Acquirer: United Bank, Zebulon GA
  • Vitals: As of 7/31/09 assets of $167 million, deposits of $155 million
  • DIF Damage: $48 million


  • Failed Bank: CapitalSouth Bank, Birmingham AL
  • Acquirer: IBERIABANK, Lafayette LA
  • Vitals: As of 6/30/09 assets of $617 million, deposits of $546 million
  • DIF Damage: $151 million


  • Failed Bank: Guaranty Bank, Austin TX
  • Acquirer: BBVA Compass, Birmingham AL
  • Vitals: As of 6/30/09 assets of $13 billion, deposits of $12 billion
  • DIF Damage: $3 billion (!)

There was a confusing article in Bloomberg Thursday, which suggested FDIC is considering a new $5.6 billion fee on banks to replenish the DIF.

Just so folks are clear, that $5.6 billion was already assessed. Banks accrued the expense on June 30th and will pay the cash into the DIF on September 30th. That was a special assessment of 5¢ for every $100 of deposits.

We will be getting an update on the DIF’s funded status next Thursday, when FDIC publishes its Quarterly Banking Profile.

But here’s what we know about the DIF’s status right now:

  • DIF balance at 3/31 = $13.0 billion
  • Contingent Loss Reserve at 3/31= $28.5 billion (i.e. reserves set aside for current and future losses)
  • Q2 assessments = $8.9 billion ($5.6 billion one-time assessment + $3.3 billion scheduled quarterly assessment)

That’s $50.4 billion of firepower. Since March 31st, we’ve had new bank failures that will cost an estimated $19.2 billion.

If FDIC appears to have a decent amount of reserves, will they have to draw on their credit line at Treasury? It’s possible.

The issue is the liquidity of their assets. A huge chunk of their balance sheet is made up of assets received from failed banks. REO, toxic loans, etc. That’s not cash they can use to finance bank seizures and sales. If they run out of cash, they may have to borrow from Tim Geithner.

I’m working on getting more information about the composition of the DIF, in particular how much cash they have on hand. I’ll follow up when I know more.

And now for a tidbit: I have been critical of FDIC in the past for not collecting deposit insurance premiums from most banks between 1996 and 2006. I wasn’t aware that FDIC was prevented by law from doing so during that period because the DIF was above 1.25% of insured deposits.

I was wrong to be critical of FDIC on this point. It was Congress’ fault, not theirs.

They changed the law back in 2006, by the way, right before Sheila Bair was installed as Chairwoman. For those interested, it’s 12 USC Section 1817 (b).

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