The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday, it’s no easy feat for the FDIC to stay ahead of the game.
The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.
Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.
“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”
U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.
Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.
Although that is a realistically correct headline (Please see You Know The Banking System Is Unsound When…. for a justification), I did overlook things FDIC did to temporarily stay in the game.
Prepaid fees is yet another attempt to keep the game going. How much longer this can last is anyone’s guess. Those prepaid fees are going to hurt bank earnings 100%
This news generated some worried-soundingheadlines. Think about it for a moment, though: If the resources available to insure $4.8 trillion in deposits (it’s actually more than that, but the FDIC doesn’t say how much more for reasons I will explain near the end of this post) really amounted to only $10.4 billion, we shouldn’t be worried. We should be completely freaking out—pulling our money out of banks and stuffing it in mattresses. I haven’t noticed this happening lately. So either (a) we are a nation in complete denial, or (b) the size of the FDIC insurance fund doesn’t matter much.
I’m going to go with (b). Yes, the continuing shrinkage of the deposit insurance fund from a peak of $52.8 billion at the end of March 2008 indicates that banks are troubled. (Who knew?) But the deposit insurance numbers that really matter are how much the FDIC can borrow from the Treasury to cover any shortfalls and how much it can charge still-solvent banks to pay back any borrowings and eventually rebuild its insurance fund.
First, the FDIC’s borrowing line with Treasury: In May, Congressvoted to increase it to $100 billion from $30 billion, with borrowings of up to $500 billion possible if the Federal Reserve Board and the Treasury Secretary give their okay. So we’re talking about $510.4 billion currently available to insure depositors. What’s more, Congress has stated in the past that FDIC-insured deposits are "backed by the full faith and credit of the United States." If losses passed $510.4 billion, Congress would presumably be good for them. If it welshed, argentinedrussia’dvallejoedjeffersoncountied, that would amount to a default on the nation’s obligations.
Taxpayers aren’t supposed to end up footing the cost of bank failures, though. Banks are, through the assessments (insurance premiums, basically) levied by the FDIC. The cost of these assessments tends to get passed on to depositors (in
The price is high due to NYC's limited supply of Medallions.
The taxicabs of New York City, with their distinctive yellow paint, are a widely recognized icon of the city. Taxicabs are operated by private companies and licensed by the New York City Taxi and Limousine Commission (TLC). It also oversees over 40,000 other for-hire vehicles, including "black cars", commuter vans and ambulettes. "Medallion taxis," the familiar yellow cabs, are the only vehicles in the city permitted to pick up passengers in response to a street hail. Wikipedia....
While the off-the-lows mentality of today's market performance was heralded by most as a signal that the BTFD'rs are back, we gently remind them that the Nikkei (futures) did not bounce at all... In fact S&P futures bounced to a rather eerily perfect 38.2% Fibonacci retracement of the overnight plunge and then faded into the close. All the major indices managed to get back to unchanged on the day (but the S&P 500 was the last to make it and instantly turned around once it did). Credit markets opened gap wider and did not bounce back anything like stocks. Treasuries sold off modestly from their pre-opening levels then drifted lower in yield into the close (ending d...
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
Five years after the 2008 financial market collapse, governments and central banks across the globe have still re-ignited a sustained global economic expansion. What growth there has been, has been localized, sporadic and anemic. Europe remains mired in recession. The expansion in the U.S. is episodic, with alternating quarters of growth and contraction. While China, seemingly rebounding, lacks the aggregate demand to pull other economies along in its wake.
How to put the global economy on an even keel remains a puzzle to be solved. But, a more profound worldwide economic stagnation looms on the horizon. How we tackle today's problems will determine in part our ability to navigate the secular dearth of growth we are soon to face.
According to United Nations' projections, several nations in the developed world will begin to experience a contraction...
Futures down moderately after yesterday's outside day. The extreme overbought conditions on the weekly and monthly index charts are finally relenting some. Even uber bulls would prefer solid entry points on stocks rather than chasing constantly. The S&P 500 had not touched the 10 day moving average since May 2nd, until yesterday – a not common situation. In theory the S&P 500 could go all the way down to 1597 – which was its primary breakout level – and still be in decent condition, but surely dip buyers trai...
The market went through some gyrations on Wednesday in reaction to Fed Chairman Bernanke’s testimony before the Joint Economic Committee. He first defended continued quant easing by warning, “A premature tightening of monetary policy could lead interest rates to rise temporarily but also would carry a substantial risk of slowing or ending the economic recovery.” Stocks dutifully rallied and all major indexes hit new intraday highs.
But alas, consensus is apparently not a given over the longer term. The minutes hinted that a tapering off could start sooner, “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.” So …...
Few stocks have attracted more news over the last six months than nutritional supplement maker Herbalife (NYSE: HLF).
Even casual market observers are aware of the circumstances surrounding the the initial bout of extreme volatility in the name back in December 2012. The shares went into free-fall at the end of the year after hedge fund manager Bill Ackman revealed in typical sanctimonious fashion that his firm Pershing Square Capital Management was short around $1 billion worth of the stock.
Amid much pomp and circumstance, Ackman laid out his short thesis at a New York investment conference and...
SKS - Saks, Inc. – Timely bullish bets initiated in Saks options just seconds prior to the closing bell on Tuesday are generating sizable gains for at least one trader today, with shares in the high-end retailer up at the highest level since 2008. The stock closed Tuesday up 11% on the day at $13.67 after the company reported first-quarter revenue above average analyst expectations. Within minutes of the close shares in SKS moved sharply to the upside after the New York Post, citing a source familiar with the matter, reported...
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By Craigzooka
I am going to share with you how I manage my IRA and the power of reducing your cost basis. My goal each year is a 20% return in my IRA. Sometimes I make it and sometimes I don't, but I believe that all of my success is due to reducing my cost basis. To illustrate the power of reducing your cost basis here are some trades we did last year. These trades are taken from an educational portfolio we ran in a paper-trading account for a little more than a year.
We bought RIG on 5/15/2012 for $44.13, sold it on 1/18/2013 for $46 but booked a profit of $1,154.
We bought MT on 1/4/2012 for $19.24, sold it on 12/21/2012 for $15 but booked a profit of $454.
We bought CHK on 1/27/2012 for $21.93, sold it on 10/19/2012 for $18 b...
Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...
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Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi. Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward. So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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