Full Faith and Credit


As the Deposit Insurance Fund – the fee-based safety net for customers of failed banks – shrinks alarmingly, regulators have tried to calm American taxpayers. After warning in a March 20 speech that bank failures could cost $65 billion over the next five years, Sheila Bair, chairman of the Federal Deposit Insurance Corporation, assured an audience of community bankers that “we won’t run out of money” thanks to new premiums the FDIC had imposed on them and their colleagues.

“Some ask: Why not get help from taxpayers?” Bair said. “Turning to taxpayer funding could open up a whole new debate about the degree of government involvement in the affairs of insured banks. And it would paint all banks with the ‘bailout’ brush.” Comforting, right?

Maybe not. While the insurance fund – down to a relatively meager $19 billion at the end of 2008 — indeed may stay solvent, the FDIC has been quietly preparing for the worst, asking Congress to increase its line of credit from the U.S. Treasury (i.e., taxpayers) from $30 billion to $100 billion. Unnecessary, one hopes, but consider this precedent: After a string of thrift failures in the 1980s, the Federal Savings and Loan Insurance Corporation (FSLIC) did, in fact, run out of money. Taxpayers ultimately absorbed roughly $125 billion in losses. FSLIC was abolished in 1989 and the FDIC began insuring deposits in thrifts as well as banks.

Current events are spookily reminiscent of the s-and-l crisis. As we report on the Subsidyscope Web site, 21 banks failed during the first quarter of 2009 alone, resulting in estimated charges to the insurance fund of almost $2.3 billion. Our running list of failed banks provides basic data for those who have a morbid interest in tracking the collapse of institutions around the country – and in watching the previously bloated insurance fund get smaller and smaller. For those curious about how and why a particular bank met its end, we offer, where available, a post-mortem called a Material Loss Review, prepared by either the FDIC or the Treasury inspectors general. The documents are packed with intriguing details, including measures of financial health that would never be made public if the institution were still alive.

One recent review reveals that the now-defunct and apparently ill-named Integrity Bank of Alpharetta, Ga., sank “primarily due to management’s aggressive pursuit of asset growth concentrating in higher-risk ADC [acquisition, development and construction] loans without adequate controls.” We also learn that the FDIC’s “supervisory actions were not timely and effective in addressing the bank’s most significant problems.” Not something Sheila Bair is likely to mention in her next speech.