Officials tried to shore up confidence Wednesday that the nation’s banking system remains resilient enough to withstand additional hits.
“The deposit-insurance fund is solid,” Ed Yingling, president and chief executive of the American Bankers Association, told CNBC. “We have been in much worse shape before.”
So far this year, 11 banks have failed and another 117 are considered problematic by the Federal Deposit Insurance Corp.
That compares with 1,500 banks and thrifts on the troubled list in the early 1990s during the savings-and-loan crisis, Yingling said.
Federal officials are working to prevent the nation’s largest thrift, Seattle-based Washington Mutual, from becoming the next domino to topple in a week that has seen insurer AIG receive a bailout and investment bank Lehman Brothers fail. Earlier this month, the federal government took control of mortgage-finance giants Fannie Mae and Freddie Mac.
WaMu, which has about three dozen locations in metro Denver, put itself on the auction block this week, and banking regulators are helping in the search for a buyer, according to media reports.
But it was uncertain who might bite without the government absorbing some of the losses contained within WaMu’s $230.2 billion real-estate loan portfolio.
WaMu said it remains well-capitalized, despite a share price hugging $2 and credit downgrades. Supporters also say WaMu has been more honest about writing down its bad debt, unlike some competitors.
A takeover of WaMu, which has $143 billion in deposits, would far surpass the damage from the failure of California thrift IndyMac Bank, which drained $7.6 billion from the FDIC’s deposit-insurance fund in the second quarter.
That fund stands at $45.2 billion and is looking to raise more money to cope with rising bank failures.
A WaMu failure could cost the FDIC $24 billion, predicted Richard Bove, an analyst at Ladenburg Thalmann & Co., earlier this week.
Banks pay a premium on deposits to obtain FDIC insurance, but those premiums go into the Treasury and are spent, said former FDIC Chairman William Isaac. The idea of a separate account holding actual dollars to insure bank deposits is a myth, he said. Taxpayers will be on the hook if the situation worsens.
“There is an implied backing by the Treasury that they would come in and shore it up if necessary,” said Tom Coxhead, a financial adviser with RBC Wealth Management in Denver.
Although most banks remain sound, depositors shouldn’t tempt fate by depositing more than the FDIC limits with any one bank, Coxhead advises.
By some estimates, 40 percent of bank deposits, mostly business-related, are beyond the FDIC insurance limits of $100,000 per individual account and $250,000 for retirement accounts.
Chicago fixed-income analyst Jim Bianco predicts that Congress will need to authorize $500 billion in new borrowing authority for the FDIC.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
