FDIC Blows Through $16 Billion of the Insurance Fund in Fourth Quarter

The FDIC released its eagerly anticipated quarterly report detailing the sad state of affairs that our banks find themselves in.  At this point, investors are immune to shockingly bad news, so from that perspective, the report was well received as the Dow only sold off around 88 points.  A few highlights for those not interested in reading the press release:

• Commercial and savings institutions insured by the FDIC reported a net loss of $26.2 billion in the fourth quarter of 2008.
• More than two-thirds of all institutions were profitable in the fourth quarter, but their earnings were outweighed by poor performance from a few large banks.  Ahem, you know who you are.
• Total deposits increased by $307.9 billion or 3.5%, the largest percentage increase in 10 years.  This is actually somewhat positive.  It seems that despite all the bad news, we haven't lost confidence in our banks.  It does indicate cash hoarding and risk aversion, but is still better than massive withdrawals and purchases of gold and guns.
• Twelve institutions failed during the fourth quarter and one received assistance.  During the year, a total of 25 insured institutions failed.  The problem list grew from 171 to 252, with total assets increasing from $115.6 billion to $159 billion.
• The Temporary Liquidity Guarantee Program raked in $3.4 billion in fees since its October inception.  Of course we can easily blow through this if any of the $225 billion in outstanding FDIC-guaranteed debt defaults or any of the banks that purchased guarantees on the $680 billion in additional deposits fails.
• Most troubling, in my opinion, is that the FDIC blew through $16 billion of its insurance fund and only has $19 billion available.  $22 billion has been set aside for estimated losses on failures anticipated in 2009.  Call me crazy, but this doesn't seem like nearly enough to cover the potential failures.    There are 252 banks on the list with assets of $159 billion and we're just getting warmed up.  We're not even out of February and already 14 banks have failed this year compared to twelve institutions in the fourth quarter which cost the FDIC $16 billion.  The rate of bank failures is just beginning to pick up steam as the economy has hit a brick wall and default rates will continue to ratchet higher.  Next year will be far more expensive than this year so how is $22 billion supposed to cover the rest of the year?  That number seems completely unrealistic to me.  Although the FDIC board is meeting tomorrow to set deposit insurance rates and to consider adopting enhancements to the risk-based premium system (uh, ya think?), something tells me that they are completely mispricing the cost of the insurance.  Mark my words, before the end of the year, the FDIC will be hitting up the Treasury for cash.