The U.S.
government-administered insurance fund that protects depositors slipped into
the red after fifty banks collapsed during the third quarter. The fund that
protects more than $4.5 trillion of U.S. bank deposits fell into the red for
the first time since the fallout from the savings-and-loan crisis of the early
1990s as the pace of bank failures accelerated.
The fund had a negative balance of $8.2 billion at the end
of September after the fund dropped by $18.6 billion during the third quarter
of 2009, federal regulators said Tuesday, Nov. 24. This report confirms what
officials of the Federal Insurance Deposit Corporation (F.D.I.C.) said in
October that the deposit insurance fund had been depleted.
The bulk of the fund’s losses were stemmed from $21.7
billion in provisions that regulators set aside to cover future failures.
Federal officials have taken action to replenish the fund.
The agency recently approved plans calling for industry to lend money to the
insurance fund by ordering banks to prepay annual assessments that would
otherwise have been due through 2012. That move is expected to add about $45
billion to the fund.
The number of problem banks that run the biggest risk of
collapse increased to 552, from 416 in the second quarter. F.D.I.C. officials
expect that bank failures will cost the insurance fund $100 billion over the
next five years. More than half of that cost has already been accounted for,
while the new prepayment plan is expected to cover the rest. If losses grew
considerably worse, officials might have to impose additional special
assessments on banks or draw on the Treasury’s backup credit lines.
So far, the F.D.I.C. has seized and sold 124 banks in 2009,
and analysts expect hundreds more to collapse in the months ahead. That has put
significant pressure on the F.D.I.C. fund, which posted a negative balance for
the first time since 1992 when regulators cleaned up the carnage from hundreds
of failed thrifts and other commercial lenders.
The problems afflicting the bulk of the industry’s lenders,
soured loans made to consumers and property developers, have grown considerably
worse. Bad loans of virtually every stripe, credit cards, mortgages, small
business and commercial real estate, continue to grow, albeit at a slower pace.
Over all, banks charged off $50.8 billion in the third quarter, or 2.71 percent
of assets. That is the highest charge-off rate in any quarter since the
government began collecting data in 1984.
Despite the turmoil in the industry, banks posted a modest
$2.8 billion profit in the third quarter of 2009, as their securities portfolios
recovered and banks with less than $10 billion in assets saw margins improve.
Bank profits were more than triple the $879 million they earned in the third
quarter of 2008 and improved from a $4.3 billion loss in the second quarter of
2009.
Loan balances plummeted by $210.4 billion, or 2.8%, the
largest percentage drop on record as banks pulled back credit and saw reduced
loan demand. Balances declined across all major loan categories, with
commercial and industrial loans falling by $89.1 billion, or 6.5%.