FDIC Shuts Down 3rd Bank This Year

[Norwayguy]

Regulators Shut Small Georgia Bank; 3rd This Year - ABC News

FDIC shuts 3rd bank this year following last years 157 closings...The deposit insurance fund is expected to lose 80.4 million on the closing of this bank.

The growing number of bank failures has sapped billions of dollars out of the deposit insurance fund. It fell into the red in 2009, and its deficit stood at $8 billion as of Sept. 30.
The number of banks on the FDIC's confidential "problem" list jumped to 860 in the third quarter of last year from 829 three months earlier. The 860 troubled banks is the highest number since 1993, during the savings-and-loan crisis.

So for how long can the FDIC run a deficit and when will the general public start realizing this exists?

 

[VolAgent]

Yet consumers still want to believe that banks are safer than insurance companies.

 

[Norwayguy]

Yet consumers still want to believe that banks are safer than insurance companies.

Whats funny is they made the 250K protection cap permanent in the overhaul....How much does that add to the cost of FDIC? 860 banks are on the trouble list the highest since 1993 and the S&L crisis.

Bank = Deposits leveraged out for loans
Insurance Company = Legal Reserves

What the banks have that the Insurance Carriers don't is the Federal Government backing FDIC while Insurance Carriers are state regulated and we can not use Guarantee associations in our marketing.

 

[VolAgent]

Whats funny is they made the 250K protection cap permanent in the overhaul....How much does that add to the cost of FDIC? 860 banks are on the trouble list the highest since 1993 and the S&L crisis.

Bank = Deposits leveraged out for loans
Insurance Company = Legal Reserves

What the banks have that the Insurance Carriers don't is the Federal Government backing FDIC while Insurance Carriers are state regulated and we can not use Guarantee associations in our marketing.

There should be a serious study of disbanding the FDIC, it gives a false sense of security, and allows a poorly run bank to be swept under the rug. Also, bank execs should be held responsible for their crimes. 157 banks should not have failed last year. Either banking is a very risky activity, or they are not properly managed. I vote for the later. I am all for incorporation and limited liability for stockholders. But directors and executives are directly involved in a business and shouldn't get a free pass when negligent management lead to the failure of a business.

 

[Norwayguy]

Not sure If I can agree with getting rid of the FDIC, how many bank failings in which even 1 person loses all they have and its well under 100K or 250K would cause a lot of distrust in the system and I would say the system needs the trust especially with 860 banks in the watch list.

Just look at Congress they want more loans to be made while at the same time we talk about the banks needing to make rational business loan decisions.

 

[scagnt83]

So out of curiosity, does anyone know how solvent all of the state guarantee funds are?

Of course we all know that the FDIC could never pay out what it has promised.

But can the SGAs if there was a major meltdown among insurance carriers?

 

[Norwayguy]

So out of curiosity, does anyone know how solvent all of the state guarantee funds are?

Of course we all know that the FDIC could never pay out what it has promised.

But can the SGAs if there was a major run?

Do the guarantee funds even exist in more than name?

 

[VolAgent]

Not sure If I can agree with getting rid of the FDIC, how many bank failings in which even 1 person loses all they have and its well under 100K or 250K would cause a lot of distrust in the system and I would say the system needs the trust especially with 860 banks in the watch list.

Just look at Congress they want more loans to be made while at the same time we talk about the banks needing to make rational business loan decisions.

You could never get rid of the FDIC with the amount of leverage in the current system. Required reserves are something like 5% of deposits placed with The Fed and 5% on hand. I could be off a bit, but probably close. That is too much leverage not to have the FDIC. We'd need to dial it down some, money would get tighter, rates would come up some, and loans would be better underwritten.
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So out of curiosity, does anyone know how solvent all of the state guarantee funds are?

Of course we all know that the FDIC could never pay out what it has promised.

But can the SGAs if there was a major meltdown among insurance carriers?

Considering how carriers are reserved, they'd be placed in receivership long before they even got down to required reserves. Look at Shenandoah, last I heard, they are still paying claims from their reserves and haven't needed a dime from the state of Virginia. Their only reaction was to prevent surrender or borrowing from life and annuity policies. Yes, that definitely hurt, but the money is still there and earning interest.

 

[scagnt83]

Considering how carriers are reserved, they'd be placed in receivership long before they even got down to required reserves. Look at Shenandoah, last I heard, they are still paying claims from their reserves and haven't needed a dime from the state of Virginia. Their only reaction was to prevent surrender or borrowing from life and annuity policies. Yes, that definitely hurt, but the money is still there and earning interest.

I agree about the reserves, but how can a carrier not allow access to accumulated funds? Is this a normal part of receivership?

And who cares if its still earning interest if you cant access the money??!!
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Do the guarantee funds even exist in more than name?

I was hoping that you would know the answer to that one Peter!!

 

[VolAgent]

I agree about the reserves, but how can a carrier not allow access to accumulated funds? Is this a normal part of receivership?

And who cares if its still earning interest if you cant access the money??!!

The state is the one preventing access, through the Commissioner of Insurance as Deputy Receiver. You have to annuitize or claim the death benefit to get to the money.