'Bracing for Well Over 100 Bank Failures'

Government agencies are not known for being ahead of the curve. In fact, if they respond at all to serious concerns under their purview, they usually end up doing too little, too late, or they shut the barn door long after the horse has bolted. Still, even bureaucrats manage to get things right once in a while, and I believe today's Wall Street Journal report, "FDIC to Add Staff as Bank Failures Loom," details one of those times.

The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen.

FDIC spokesman Andrew Gray said the agency was looking to bulk up "for preparedness purposes." The division now has 223 employees, mostly based in Dallas.

The agency, which insures accounts at more than 8,000 financial institutions, is also seeking to hire an outside firm that would help manage mortgages and other assets at insolvent banks, according to a newspaper advertisement.

In public, policy makers are debating what role the government should play in trying to stabilize the housing market and minimize foreclosures. Meanwhile, regulators have worked discreetly behind the scenes to closely monitor the growing number of troubled banks and thrifts considered at risk.

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

In job postings on its Web site, the FDIC said it is looking for people with "skill in performing duties associated with a financial-institution closing, such as receivership management, resolutions and/or asset disposition; knowledge of the resolutions process as it relates to complex financial institutions." Such positions would require "very frequent overnight travel," the posting said, and would pay up to $180,770.

"The notion of bringing back some people who have been through it before is very smart," said William Isaac, who was FDIC chairman from 1981 until 1985. All told, the FDIC has roughly 4,600 employees, far fewer than the about 15,000 it had as recently as 1992.

On Sunday, the FDIC ran a newspaper ad seeking companies that could service commercial loans, mortgages and student loans in the event of a bank failure. It didn't say how much a company could earn in this area.

The FDIC rated 65 banks and thrifts as "problem" institutions at the end of the third quarter of 2007, up from 47 institutions a year earlier. Both figures are low by historical standards. At the end of 1993, there were 572 "problem" banks and thrifts. The FDIC is expected to update its data on "problem" institutions today.

Before the housing market soured, the banking industry was enjoying one of its most profitable stretches in U.S. history. There wasn't a single bank failure from July 2005 through January 2007, an unprecedented span.

There have only been four bank failures in the past 12 months, a rate the FDIC has easily been able to handle.

In many parts of the country, the housing-market decline has hamstrung banks, and regulators have reported weakening performance of commercial real estate, small business and credit-card loans. Exacerbating the situation is a cash-flow crunch, which makes it harder for banks to obtain funding to originate new loans.

FDIC Chairman Sheila Bair, Comptroller of the Currency John Dugan and Office of Thrift Supervision Director John Reich have warned of a pickup in bank failures. Last week, Mr. Reich reported that the thrift industry lost a record $5.2 billion in the fourth quarter.

The FDIC was created by Congress in the 1930s after a series of bank runs during the Great Depression. At the end of 2007, it had $52.4 billion in its fund that backstops the nation's insured deposits.

Comments

[farang]

"At the end of 2007, it had $52.4 billion in its fund that backstops the nation's insured deposits."

Begs the question: How much does "the nation" have in insured deposits "at the end of 2007"?

Or should I say: In the event of a collapse of the US dollar and economy, how fast can the Bureau of Engraving print?

[garyalan]

great post. I enjoyed your book.

It is not the number of bank failures that is important, but more of the size of failures that are going to occur that will cause the trouble.

[TheFinancialNinja]

Durable Goods and New Home sales sucked. Fannie Mae sucked. Plus all of the economic releases yesterday sucked... and the market breaks UP, on a technical break of a Triangle formation.

Check out these simply insane facts, figures and charts. (http://benbittrolff.blogspot.com/2008/02/simply-insane.html)

[Wyman Elrod]

As a former FDIC employee I have to disagree. In September 2005 the FDIC conducted an ill advised RIF of trained bank closing and other types of employees based in Dallas and DC. Over fifty of those former FDIC employees all over fifty years of age filed an age discrimination suit which received class certification by Judge Urbina in DC. Discovery has just been completed and trial is expected in September 2008 at the earlist. We expect the DC court to order mediation at some future date. The FDIC should never had conducted this RIF of its long time loyal employees and left only about 200 employees to handle future bank failures. I had 19 years service having begun my FDIC employment in Houston TX in October 1986 at the start of the S&L Banking crisis. I have NO medical coverage and my pension will take a $300 monthly haircut reduction to less than $800 monthly. We have more information about this impending suit should you have an interest in our case known as Aliotta et al v. Bair/FDIC, No. 05-cv-02325 D.D.C. Thank you.

[hammerhead]

We had over 1,000 thrift failures during the S&L crisis. Does the present liquidity crisis appear to be any less dangerous than the S&L crisis? If not, doesn't the idea of only 100 banks going down seem a bit tame?

[Kelly K]

Help I have been onboard with WIlliam J, Panzner, Harry Schutlz, Martin Weiss & John Rubinos line of thinking since 2005 but lacked overall supporting knowledge. I had been talking to my banker, financial, planner and others voicing my thoughts about my the US is indeed heading into a depression back in late 05 -early 06. I started saying and would temper the word depression back then cause many looked at me like I was nuts.How about a garage logic visionary that has great insight to digest fact & reality that gov't is corrupt & greedy and greed always destroys. Hello Tom Petters owner of SUn Country airlines. Owns a fleet of planes but now can't get out of a 10x 10 cell.
I'm a licensed Gen contractor and hold a Mn Real Estate license and rehabbed over 40+ homes in Mpls & surrounding from 2000-2005 when got out early for reasons above. NOW since i had been looking for a Panzner type thinking financial planner and could NOT find one that even up till recently 10-08 I was told by another CFP that he can't help me cause he too doesn't think we will get to or stay in dire straights for more that 2-3yrs HELLO! Can anyone help direct me to a finacial advisor or gropu I could talk to since I just lost 7% of my portfolio in the last 2weeks. Not as bad as some but considering I had a net worth of 1.2 in 2000 and now only 600k after loosing in market and trusting some i shouldn't have. I'm panicing with no career a daughter in college, an adopted son suffering with a life threating disease I need to preserve my money and start a new career. Any directional help or mentorship would be much appreciated.
Thanks for taking the time to read, KellyK email me at kcpropertiesllc@hotmail.com we can talk. P.S. FYI I'm planning moving to Phoenix, Az by Jan 1st and lastly I heard about the prudentbearfunds.com market fund any good? +17.98%