The government agency that is supposed to bail out depositors when a bank fails might need a bailout itself — to the tune of $150 billion.
The Federal Deposit Insurance Corporation (FDIC) has a "secret list" of 117 banks it is watching, writes David Evans of Bloomberg News. It won't reveal bank names for fear of immediate runs on those banks.
So far in 2008, 12 banks with assets of $42 billion have gone under. Indymac, which had $32 billion, was the largest by far.
Yet the FDIC has just $45.2 billion to back up its more than 8,000 covered institutions.
Meanwhile, Christopher Whalen, managing director of Institutional Risk Analytics in Torrance, California, figures it will need $200 billion during 2009 alone to dig out additional failing banks.
The U.S. Treasury will almost certainly come to the rescue, Evans maintains. And the final tab on all bailouts will balloon past the $700 billion Treasury Secretary Henry Paulson is negotiating today with Congress.
"It's not going to be Armageddon,'' Mark Vaughan, an economist and assistant vice president for banking supervision and regulation at the Federal Reserve Bank of Richmond, Virginia told Evans. "But it's going to be bad.''
Of course, Americans have more money than that. More than a third, $2.6 trillion of our total $7 trillion in FDIC-covered banks, is uninsured.
The FDIC saw the problem coming, Evans maintains. An internal FDIC memo suggested that bank failures due to subprime collapse would hit $1 billion, then drop to $450 million in 2009.
FDIC Chairwoman Sheila Bair then repeatedly told the press that any new failures would not be out of the ordinary. She said most depositors need not worry about their money, that the system is fine.
That was then. This week, Bair told a panel on banking that things will, in fact, get worse. And that more banks will fail.
"There's going to be more, no doubt about it. We are in a challenging environment," Bair said at a panel discussion at the New York Stock Exchange.
Challenging? Like maybe $200 billion vs. $1 billion kind of challenging?
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