FDIC games

How is this even remotely okay?

[I]t appears the FDIC will ask for three years of assessments in advance, or about $36 billion according to Reuters. The advantage to the banks of prepaying assessments (as opposed to another special assessment) is the banks don’t have to record the expense immediately.

Need any further evidence that the FDIC is out of money? So, the banks will prop up their insurance fund by $36 billion, but will pretend they’ve still got the cash so they don’t fail and cause the fund to be drawn down. Yeah, that should work great!

I find that $36 billion to be interesting in light of how my calculations currently have the FDIC Deposit Insurance Fund’s pre-assessment balance around -14.8 billion as of last Friday, assuming that the ratio of actual losses to estimated losses is still running at the second quarter’s 1.69 rather than the first quarter’s 1.91. Since there was a $14 billion difference between my calculation and the FDIC quarterly report thanks to the second-quarter assessment, this suggests that the reason the Fed wants to collect advance assessments is because the fund has run out even on a post-assessment basis. I wonder, however, why they don’t want to tap their credit line as everyone had assumed they would.

One interesting theory is that the reason the FDIC bank closures have suddenly slowed down of late – three in two weeks – is that they are having problems coming up with the cash to cover the losses.

UPDATE – Make that $45 billion upfront. In cash, please. And you can be certain that losses will reach $100 billion long before 2013; they’ve already blown through $50 billion in three quarters this year.