The FDIC is running out of cash

After noticing that the estimated cost of the five banks that failed yesterday accounted for a little more than 28 percent of the FDIC’s Deposit Insurance Fund, I wondered how much the FDIC could possibly have left in the DIF considering that 51 other bank failures have occurred since the last FDIC Quarterly was published. According to Table I-B. Insurance Fund Balances and Selected Indicators, the FDIC began Q1 2009 with $17,276 million in the DIF and finished it with $13,007 million after shutting down 21 banks during that time.

Since then, Calculated Risk has recorded 52 more bank failures in its ongoing Bank Failure Friday series. This morning, I went through and added up the estimated losses that the FDIC reports each time it seizes a bank. As of yesterday, the cumulative estimated cost to the Deposit Insurance Fund since the beginning of the second quarter reached $15,992 million. This suggests that the FDIC is now $2.98 billion in the red after yesterday’s bank failures and will soon be requesting a bailout by the federal government. However, it may be even worse, since the $2,232 million in estimated losses during the first quarter translated into a $4,629 million reduction in the DIF balance.

Because two bailouts totaling $25.75 billion were attempted in 1986 and 1987 before the FSLIC was shut down in 1989, I suspect at least one major bailout will be attempted before the deposit insurance system either snaps back to its 1.5 reserve ratio or collapses altogether. (Update: Calculated Risk emailed to point out that the FDIC has a $30 billion credit line with the Treasury, which will likely be quietly increased rather than risk a negative public reaction to yet another government bailout.) However, given the 150 insured depository institutions which are presently reported as having $193 billion in deposits at risk, I can only conclude that the odds tend to favor the latter. The all-time low in the reserve ratio was -0.25% in 1991, as the FDIC digested the failed FSLIC’s obligations. The reserve ratio is only -0.06% based on estimated losses so far this year, but can be expected to continue falling as more banks fail.

NB: the gap between bank numbers 59 and 65 in the graph is not a mistake. That reflects the 6 banks owned by Security Bank Corporation in Macon, Georgia, which the FDIC reported as a single cost.