6/01/2009

How long will FDIC be able to guarantee deposits?

The FDIC deposit insurance fund, which was featured on 60 minutes this weekend, has never allowed a depositor to lose even one penny of guaranteed deposits. Currently deposits are guaranteed up to $250,000 in all FDIC insured institutions. This insurance has to this point been funded entirely by the banking industry, as opposed to the Federal printing press, this may be on the verge of a tipping point. Imagine the panic in the streets if the FDIC is even perceived to be slightly vulnerable to the shocks in the small to mid cap domestic banking market, which has already experienced 30 seizures this year, over a dozen more than last year and we are exactly halfway through the Hell of 2009 today.

Chart and comment below from Tyler Durden of Zero Hedge, my favorite finance blog, and probably favorite financial news source period.

The FDIC's Deposit Insurance Fund has plunged to an all time low of just $13 billion as of March 31, or 0.27% of $4.8 trillion in insured deposits. It is worth nothing that since March 31, 15 new banks have failed which includes the biggest one so far this year, BankUnited (which Marla has a special fondness for in her heart and will be providing some ongoing entertainment on). It is thus safe to say that the $13 billion has been spent in the past 2 months, especially since banks no longer issue debt under the TLGP (of which, nonetheless, there was $336 billion outstanding at March 31 - somehow when banks are talking about repaying TARP, their FDIC-guaranteed debt, by far the biggest crutch to the banking system, is conveniently never mentioned) and therefore no longer pay FDIC guaranteed debt issuance associated fees. For many more thoughts on this phenomenon, go here.

Also, DIF-Insured deposits have hit an all time record high of $4.8 trillion, an increase of $90 billion from December 31 as depositors have been seeking a safe haven from the market in Q1. It is unknown if they would have done so, had they known their "insured" deposits will cover only the first 0.27% of depositors if there is another bank failure tsunami. As there is only one more month left in Q2 it will be curious to see it there will be a rotation out of deposits into investments at June 30, concurrent with the time we will know what the current level on the DIF is. Of course, as this data will be available some time in September, by then it may be completely worthless as one would imagine at some point the mystical futures buying force, end of month convenient fund deleveraging, or whatever else you want to call it, will have finally exhausted its market pulling strength.


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