FDIC losing money..and losing it fast

http://www.nytimes.com/2009/08/21/business/21fdic.html?_r=1&adxnnl=1&partner=rss&emc=rss&adxnnlx=1250834598-klVbIUQEz3GNFMzzATfVHA

Federal regulators are planning next week to make it easier for private equity firms to buy insolvent lenders, according to people briefed on the situation, a move that would reduce the number of failed banks that the fund would have to support. It is also trying to entice buyers by agreeing to share some of the potential losses from failed banks. And it is retooling one of its main financing programs to make it cheaper for bidders to buy the toxic assets of closed lenders.

“At this point, they are looking hard at as many solutions as possible,” said Frederick Cannon, the chief equity analyst at Keefe, Bruyette & Woods. “When you have this many bad loans at these banks, there are no easy fixes.”

For the F.D.I.C., led by Sheila C. Bair, it is critically important to keep the insurance fund full because confidence in the banking system depends in part on depositors knowing they will get their money back. But the fund, which is also used to cover losses at insolvent banks, has fallen to just $13 billion at the end of March, the latest month for which figures are available, down from $52.8 billon a year ago, as the number of bank failures accelerates. Because many of the troubled banks are small and their losses relatively large, few buyers are snapping them up. Even worse, buyers are reluctant to pick up illiquid assets, like troubled commercial real estate and construction loans that may continue to hemorrhage losses.

So far this year, 77 lenders have been closed, compared with 25 in 2008. Of those, the F.D.I.C. has found buyers for 69.

Analysts are bracing for dozens of additional failures, especially among small and medium-size banks that have made huge numbers of real estate loans that are not being paid back.

The bulk of the fund’s decline so far this year has come from about $28.5 billion the agency set aside to cover the expected losses from future bank failures.

Analysts are increasingly concerned the fund could be wiped out if more bank failures drained the money the agency has set aside to cover them. That could require the F.D.I.C. to tap a multibillion-dollar lifeline from taxpayers, through an emergency borrowing program run by the Treasury Department, to finance loan sales and other short-term obligations.

F.D.I.C. officials have been so adamant about protecting the deposit insurance fund that they are taking steps that would have been unheard of even a few months ago.

The agency’s decision to soften its stance on allowing private equity firms to buy failing banks came after intense lobbying by the industry, which is eager to tap a huge pool of accumulated capital to buy banks at bargain-basement prices. The agency is planning to relax an earlier plan to require higher capital requirements for private equity firms than for traditional banks, according to people briefed on the situation.

An F.D.I.C. spokesman said that no final decision had been made. The five members of the F.D.I.C. board are scheduled to vote on the proposal next week.

The goal of that plan is to attract more potential buyers — and higher prices — for the hundreds of troubled banks that are near collapse, as well as the tens of billions of dollars worth of toxic assets expected to fall on the government’s shoulders. The more money that regulators can recover from each deal, the less will have to be replenished from the industry’s insurance fund.

Still, some officials fear that private equity firms might engage in more risky lending to bolster their returns and be fickle, short-term investors in a business that demands stability.

Beyond luring private equity, federal officials have explored ways to bolster interest from more traditional buyers. For instance, the F.D.I.C. has struck so-called loss-sharing agreements in nearly two-thirds of the banks it has sold this year, which typically call for the government to bear the bulk of the losses of a pool of risky loans.

Such deals were used in only about 13 percent of the 179 failed bank instances shortly after they were introduced during the savings and loan crisis of the 1990s, according to an F.D.I.C. report.

This type of arrangement clinched some of this year’s biggest deals, including the sales of IndyMac Bank of California, BankUnited of Florida and Colonial BancGroup of Alabama. It is also expected to play a role in the government-assisted acquisition of Guaranty Financial of Texas by a large Spanish bank, BBVA, which could be announced as early as Friday.

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“But the fund, which is also used to cover losses at insolvent banks, has fallen to just $13 billion at the end of March, the latest month for which figures are available, down from $52.8 billon a year ago, as the number of bank failures accelerates.”

wow..big dollars all gone and thats only from march..how much have they got left now??..if the insurance for the banks has no money you will see a run on the banks..and a bank holiday..also take note of the spanish bank buying guaranty..they will own all the foreclosed houses that guaranty had..see how other countries are ending up owning american real estate..the other big holder of real estate is of course the us government and at bargain price buying

401

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~ by seeker401 on August 22, 2009.