FDIC sees big losses from US bank failuresgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
FDIC sees big losses from US bank failures Wall Street Journal
NEW YORK, Oct 12 (Reuters) - The U.S. Federal Deposit Insurance Corp. said bank failures this year are expected to create the biggest losses to the bank-deposit insurance fund since the banking crisis of the early 1990s, the Wall Street Journal reported.
So far this year bank failures will cost the FDIC $510-$810 million, the paper said. The regulators have urged banks to remain vigilant in their lending standards, the paper said, but do not see a need for sweeping changes in how banks are examined.
Last year, three banks failed for an estimated $179 million, the Journal said.
Figures this year may be somewhat distorted by the failure of First National Bank of Keystone, the loss estimate for which is $500-$800 million, the Journal reported.
Bank Failures Tapping FDIC Fund Tuesday October 12, 4:19 pm Eastern Time
By MARCY GORDON AP Business Writer
WASHINGTON (AP) -- The Federal Deposit Insurance Corp. says bank failures this year are expected to generate the insurance fund's biggest losses since the regional banking crises of the early 1990s.
Much of the loss was caused by the failure of a big West Virginia bank.
While the FDIC still has plenty of money to cover losses to depositors, the failures bolster recent warnings by regulators that some banks may need to tighten their lending standards.
U.S. Comptroller of the Currency John D. Hawke, who oversees nationally chartered banks, told a bankers' group Monday that regulators see some signs of risk spreading in the banking industry despite high earnings and hefty assets.
Last month, the Federal Reserve warned banks and directed its examiners to watch for signs that risky bank loans are piling up.
And on Tuesday, the Fed, the FDIC and two other bank regulatory agencies told banks and thrifts they would come under closer scrutiny by examiners if they made too many risky home-equity loans that let consumers borrow more than their home's value.
The new type of loans, known as high loan-to-value residential loans, have become increasingly popular in recent years.
Bank, thrifts and consumer finance companies have been in a heated competition for the new loans, which are marketed primarily as a way for consumers to consolidate their debts. The loans break the rules of traditional financing by letting homeowners borrow as much as 125 percent of their home's value.
In some cases, examiners may ask banks or thrifts to sell their high loan-to-value loans or to raise more capital, the regulators said.
The FDIC estimates that so far this year, five bank failures will cost the insurance fund $510 million to $810 million. The estimate was first reported in Monday's editions of The Wall Street Journal.
``You'd have to go back to the early 1990s to find a time the insurance fund has taken this kind of a hit in any one year,'' FDIC spokesman David Barr said Tuesday.
Through most of the decade, there have been fewer than 10 bank failures a year. But in 1992, at the height of the banking crisis, 122 banks failed -- mostly in Texas and New England as their oil and real estate booms, respectively, collapsed.
The banking debacle was not nearly as severe, however, as the savings and loan crisis of the same period, in which lax lending policies eventually forced a government bailout of hundreds of billions of dollars.
Then as now, the bank insurance fund, which backs each account up to $100,000, has an adequate cushion to cover depositors' losses. The fund currently has $29.8 billion.
A big portion of this year's losses -- estimated to be up to $750 million -- stem from the failure of First National Bank of Keystone, a large bank based in Keystone, W.Va.
Federal regulators, who closed the bank last month, said they found ``evidence of apparent fraud that resulted in the depletion'' of its capital. They alleged, for example, that $515 million in loans fraudulently remained on the bank's books after they had been sold.
The FDIC now controls the bank's assets. Several lawsuits, some by other banks, have been filed in federal court making claims on Keystone assets.
-- Cheryl (Transplant@Oregon.com), October 12, 1999
Thanks for the link. My take on it: "But hey, the banks are all Y2K compliant, right?" :)
-- James Collins (Jacollins@thegrid.net), October 12, 1999.
Yes, but even compliant banks can make bad loans. None of these losses had so much as a whiff of y2k (or even computer-related) problems. Sometimes it's greed, sometimes it's bad luck.
-- Flint (firstname.lastname@example.org), October 12, 1999.
Yes, keep your money in the bank where it's insured by FDIC!!! It's safe there!!! Don't dare touch your own money!!! It's covered!!! There's plenty and always will be!!!!!!!
-- Idiot Polly Screecher (email@example.com), October 12, 1999.
Yes, but even compliant banks can make bad loans ... Sometimes it's greed ...
You are so, so right.
"The Federal Deposit Insurance Corp. says bank failures this year are expected to generate the insurance fund's biggest losses since the regional banking crises of the early 1990s."
Back in '87, I had drinks, dinner and danced with the CEO of Penn Square Bank ... who helped bring down Continental Illinois ... which was one of the largest banks that the FED's bailed out in mid-80's. Because the FED deemed Continental Illinois "too big to fail". He bragged about being the "guy with most personal court cases filed against him in the U.S." You can read about it in a book called "Funny Money". Yes - it was/is greed.
He told me how he did it. He guaranteed notes with worthless collateral. Those notes were then used as collateral for more notes. House of cards. Ponzi scheme. Still going on.
He said, "Those bankers from back East knew what was going on, but they were as greedy as I was."
The financial arena is vulnerable enough right now, without or without Y2K. Y2K's the wildcard. Won't help.
FDIC SECOND-IN-COMMAND RESIGNS ABRUPTLY TO: All FDIC Employees FROM: Donna A. Tanoue SUBJECT: Management and Organizational Changes
Deputy to the Chairman and Chief Operating Officer Dennis F. Geer recently advised me of his intention to retire on September 30, 1999 ...
NEW YORK FED DETAILS Y2K LIQUIDITY MEASURES
Under the new measures, the New York Fed will now only temporarily accept pass-through mortgage securities securities of Government National Mortgage Association (Ginnie Mae), Freddie Mac and Fannie Mae as well as U.S. Treasury STRIPs where the coupon and the interest on Treasury issues are traded separately.
Until now, the Fed bank only accepted debt issued by Freddie Mac and Fannie Mae that enjoys near-Treasury credit status.
The bulk of financial markets' daily operations is usually easily financed by borrowing against top-grade collateral -- mostly U.S. Treasuries. But fears of ``Y2K'' computer glitches may make liquidity harder to get or more expensive than usual in the computer-driven banking system ...
The "little guys" are the ones who are going to get hurt.
-- Cheryl (Transplant@Oregon.com), October 12, 1999.
I'd agree with Flint on this one. Institutional memory is very short. Nobody remembers the bad old days of the 80s. Regulators are crying the blues because bankers are chasing more marginal borrowers and lowering their lending standards. Even without Y2K, banking would be heading for another bust. Hopefully it won't be as bad as the last time. But, combine greed and Y2K and you get . . .
-- Margaret J (firstname.lastname@example.org), October 12, 1999.
You ain't seen nothin' yet!
-- cody (email@example.com), October 12, 1999.
IF the FDIC is struggling with bank failures that are ONLY $510-$810 million, how can they cope with potential multiple bank failures that could easily be in the TENS of BILLIONS or even just a few BILLIONS of $$$???
And they say for you NOT to worry because your accounts are insured?
-- Forum Regular (Here@y2k.comx), October 12, 1999.