Friday, August 22, 2008

So Far, Only One Bank is Reported as Dead...

Columbian Bank and Trust in Topeka, Kansas of all places was finally put to sleep tonight by the FDIC.

Columbian Bank is a small $752 million asset bank funded overwhelmingly by deposits ($622 million). Bank collapses in recent months have led to losses to the FDIC of 15%-28% of assets. The greater the portion of the balance sheet that is funded by deposits, the greater the losses to the FDIC tends to be. In any case, we can expect the FDIC insurance fund to eat another $113 - $210 million of losses. Every few dollars that the FDIC absorbs via its insurance fund is a few dollars closer to tax payers socializng future losses.

We also continued to build the backlog, as Bank of the Bluegrass in Kentucky received a Cease and Desist order from the FDIC. Hilariously, they apparently had outsourced their "loan review" and are now going to bring it internal. Seriously?

The over/under remains 1.5 bank failures per week. The unders have been taking it for a few weeks, but the backlog is growing rapidly and I expect we are at the edge of a deluge of failures. Strap your boots on.

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