Monday, September 14, 2009

Failure Friday? Yes. Finally The FDIC Deposit Insurance Fund (DIF) Goes Negative

Well, as we have been saying week after week, the wizards at the FDIC are managing a functionally bankrupt Deposit Insurance Fund (DIF). Anyone with common sense could assess loss-reserves to the DIF asset base and recognize this as fact.

But this week is different.

This week the DIF actually lost its last penny and went negative.

Best we can tell, the FDIC is now drawing down its line from the U.S. Tax Payers...excuse us, we mean U.S. Treasury.

With the finally announced and seemingly inevitable failure of Corus Bank in Chicago (shocker!) as well as the not-insignificant failure of Venture Bank in Washington state, the DIF suffered a $2.0 billion nutpunch this week.

Loyal readers know that last week we calculated the DIF's remaining value at $1.3 billion. While the FDIC is bringing in about $200 million in top-line fees per week, simple math let's you know that $1.3 billion + $200 million - $2.0 billion = bad outcomes.

Because this is a red-letter day, we update the math below.

Deposit Insurance Fund Status:
+ $10.4 billion: DIF balance as of 6/30/09 (FDIC reported)
- $12.95 billion: Insured losses from 6/30/09 - 9/11/09 (FDIC reported)
- $0.2 billion: DIF operating expenses from 6/30/09 - 9/11/09 (estimate based on last 12 quarters)
+ $1.85 billion: Insurance assessments (estimated based on 20bps p.a. assessment per insured deposit on $4.8 trillion of insured deposits)
+ $0.4 billion: TLGP fees (TILB estimate of 65bps p.a. on $339 billion outstanding guaranteed debt at 6/30/09)
+ $0.1 billion: Transaction Accounts Guarantee Program ($736 billion guaranteed at 10bps p.a.)
= -$0.4 billion: Total DIF as of September 11th, 2009.

So, from here on out, We The People - the citizen guarantors of the FDIC - will be paying for the FDIC's (and other regulators') foolish behavior. It is officially our dime...and yet nobody seems to care. The media could do this math. This should be splashed across front pages nationwide, "FDIC Goes Broke", "Bank Failures Overwhelm FDIC," "FDIC Fails".

Where's the anger? Where's the dismay? All we see is resigned acceptance; the beaten attitude of a conquered spirit.

TILB is prepared to stand alone...