US bank failures in the offing in context

An excellent analysis posted here today by Wisdom Speaker:

“The upcoming major bank failures deserve some context, since they will be the 6th and 10th largest failures in U.S. History, and we’ve already had the first and third last year… and of course there are the (too big to fail)failed banks that get zombie treatment instead… Someone who said the current situation was nothing like the late-80s S&L crisis may have to start eating those words!

Largest bank failures in history, by asset base, INCLUDING the about-to-fail trio:

1. WaMu, 2008: $307B in “assets”.
2. Continental Illinois, 1984: $40B ($68B in current dollars)
3. First Republic Bank, Dallas (1988): $32.5 billion
4. IndyMac Bank, Pasadena, Calif. (2008): $32 billion
5. American S&LA, Stockton, Calif. (1988): $30.2 billion
6. Colonial (2009?), $26B
7. Bank of New England, Boston (1991): $21.7 billion
8. MCorp, Dallas (1989): $18.5 billion
9. Gibraltar Savings, Simi Valley, Calif. (1989): $15.1 billion
10. Guaranty Bank (2009?), $14B
11. First City Bancorporation, Houston (1988): $13.0 billion
12. Homefed Bank, San Diego (1992): $12.2 billion
13. Southeast Bank, Miami (1991): $11.0 billion
14. Goldome, Buffalo (1991): $9.9 billion
X. Corus, $7.6B

Headlines like these are going to put a dent in sentiment, especially if the emerging economic data fails to support the “immaculate recovery” thesis.

Furthermore, if we take the standard “40% loss ratio” based on the FDIC‘s track record in this current crisis, we’re talking about a $20B hit to the FDIC. The FDIC hasn’t got that kind of money left in the Deposit Insurance Fund so this will tap into a fairly large chunk of the $100B “no questions asked” line of credit that FDIC has at Treasury.

Taxpayers are already irate about the bailouts. When it becomes clear that “our deposit insurance” will, going forward at the macro level, be obtained out of “our future tax payments”, I think people might start to wonder exactly what sort of “insurance” this really is.”



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