At the very bottom of recent stories announcing the need for expanded staffing at the FDIC by 60%, with an emphasis of recruiting S&L Crisis veterans (WSJ, subscription required), was a sentence stating the following:
There are 76 banks on the FDIC’s “problem institutions” list – which would equate to about 10 expected bank failures this year. About six banks fail per year on average, FDIC officials said.
Given the understanding that any depositor with accounts under $100,000 is fully insured under the FDIC, the assumption may be that the risk to individuals is small, although getting access to your funds at a failed institution is not as simple as walking up to an ATM. Generally, depositors can access their funds within days, but other assets may take years of court wrangling until the banks business is unwound. The greater risk is that local banks are heavily involved in construction loans, where corporate defaults are rising, and the implications for the housing market and economy at large. It also appears that the FDIC has less than 2% of total funds insured available to provide their insurance, although their ratio is better than it was at the height of the S&L crisis:
As of December, the FDIC was covering $4.3 trillion in insured deposits with a fund of $52.4 billion, for a reserve ratio of 1.22 percent. That sounds scant.
But take a deep breath, because the FDIC’s reserve ratio sank as low as a negative 0.25 percent in 1991, and depositors with accounts at failed banks were still covered.
The FDIC assesses banks an insurance rate, based on how risky it judges the banks to be. The existing rates range from 0.05 percent for the least risky to 0.43 percent for the most risky. Should the FDIC need to, it could increase those rates.
Just last week, the FDIC’s staff recommended that it maintain the existing rates, saying that 99 percent of the institutions it insures are well-capitalized ” that is, they were not considered too risky (there are some 8,000 institutions).
The FDIC does let you search for an individual bank, but there’s no handy metric available to the depositor to ascertain risk. Searching for said list elsewhere will prove fruitless “ no such list exists. But a careful reading of the FDIC’s methodology and a search of private databases (more here) gives up a list of institutions, as determined by their methodology and metrics, sorted by geography. The two items used are the UBPR (Uniform Bank Performance Report) and CAMELS (Capital Adequacy, Assets Quality, Management, Earnings, Liabilities, and Sensitivity to Risk). Bankrate’s resource uses a modified version of CAMELS, omitting the ‘management’ portion, with the number of stars (5-through-1) being inverse to their CAELS ratings (1-through-5), with a higher CAELS equating to fewer stars (worse).
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Tags: ATM, bank, expected bank failures, FDIC, individual bank, insurance rate, USD
Excellent article with hard to find links.
Banking, like most industry has a natural and important business cycle. It is actually healthy after such a long growth period to have check and balance sytem that addresses weaknesses in the system, such as loose credit policies. It has always been our view at our firm that more Board education and high level of experienced management, especially in Denovos, be followed by the FDIC. We are now busy adding “special asset managers”, and replacing C level management in Financial Institutions. A sign of the times.
Anchor Bank of NW washington is by far the worst bank on this planet. There customer service is horrible, never want to help you with the problem you came in with they just go around it. There attire is sloppy. I have seen with my own eyes four managers, 7 tellers and a few other staff members get fired and embarassed infornt of many customers. the upper management espeacially tara are liers, cheats, they have hurt many families because they want to make money by getting rid of people they don’t “need” that make good money. Anchor Bank is going to be ruined if they keep this up customers are tired of seeing so much turn around it makes them uneasy! Anchor Bank worst bank in the world!