The FDIC was probably wise to get its member banks to prepay their fees for 2010, 2011, and 2012. The agency brought in $45 billion by the action, just as its capital base went into the red early last October. The FDIC could have taken in the funds from the Treasury Department instead, but that would have meant another “loan” for the financial system by the taxpayers.
Analysts now expect 200 or more banks to fail this year. Sixteen have already gone under.
A survey from MarketWatch showed that bank analysts believe that the 200 failures will cost the government as much as $50 billion. Part of the forecasts are based on the 552 banks on the FDIC “problem” bank list at the end of the third quarter of 2009. Bank analyst firm KBW told MarketWatch that “the main banking subsidiaries of Flagstar Bancorp (FBC), Sterling Financial Corp. (STSA) and Amcore Financial Inc.(AMFI) may be vulnerable.”
The predictions raise the question of whether the FDIC is well enough capitalized to handle the burden of this level of failure and whether the 200 bank number is too conservative. RealtyTrac has forecast that mortgage foreclosures will rise to three million this year, up slightly from 2009. Commercial real estate lost 37% of its value last year as 3.4% of mortgages in the sector were in default. Many of the residential and commercial loan losses have not hit bank balance sheets yet, and experts believe that regional and community banks are at particularly high risk as these loans fail.
The FDIC will not be able to get banks to “prepay” fees again. There is some chance it could raise the fees that it charges that firms whose assets it insures. But, the Treasury is the lender of last resort for the bank regulator, and that means taxpayers may well be pulled into the financial bailout business again.
Douglas A. McIntyre