Economics blogger Michael Shedlock, aka “Mish,” is asking whether the FDIC has any money left in its fund after the $2.8 billion rescue of Colonial BancGroup in Alabama. It was the biggest failure since Washington Mutual last year and the sixth biggest ever. Competitor BB&T is now feasting on the Colonial carcass.
The FDIC says it has $13 billion in its fund and has set aside another $25 billion to cover individual depositors up to $250,000 per account. But Mish, a registered investment advisor at Sitka Pacific Management, isn’t buying it:
Tonight, inquiring minds are asking “Is There Any Money Left In The Fund?”
For clues, please consider Saxo Bank Research FDIC’s Shrinking Deposit Insurance Fund – A Testimony of Current Accounting Standards.
As late as in the end of April just before the release of the bank stress tests, Ms. Bair Chairman of the FDIC said they would not need any additional bailouts from the U.S Treasury within the immediate future according to The Bulletin. After three new bank failures last Friday, the FDIC’s Deposit Insurance Fund (DIF) diminished by another $185 million for a total remaining balance of $648.1 million.
Below is a graph showing the DIF capital as a percentage of total bank deposits insured by the FDIC. Note that this graph is based on the old insurance limit with a maximum coverage of $100.000/account. This limit has been changed to cover up to $250.000/account until January 1st 2014. Estimates say that the change increases the deposits covered under FDIC insurance to approximately $6 trillion in total.
That graph looks pretty worrisome. Mish adds that recent changes to accounting rules are hiding just how damaged bank assets are — and that the number of failures is only likely to increase in the year ahead.