The FDIC to release its Quarterly Report soon
In "typical" times, when the Federal Deposit Insurance Corporation (FDIC) releases its Quarterly Report, it's probably safe to guess that barely anyone outside the banking industry, the economics discipline, or the ranks of financial analysts, notices. However, when the FDIC releases its Second Quarter report in the near future (typically, this happens about 55 days after the end of the quarter, and today is day 56), many eyes -- domestic and foreign -- will be watching intently.Bill Sardi wrote this on August 21: "The FDIC is required by law to maintain a reserve ratio, or balance divided by insured deposits, of 1.15 percent. It was at 0.27 percent as of March 31. It could be near zero at the current moment." He says that banks are hiding losses on their books from loan defaults and that the day of reckoning might be nigh at hand:
Now if just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted. A short banking holiday would have to be declared and who knows what happens from there – troops in the streets, issuance of new currency, martial law? Don’t think those in the Federal government haven’t made plans for such an occurrence.
Sardi wrote this today:
The FDIC faces a spiraling number of bank failures and it may have already tapped into its line of credit at the US Treasury, which is also out of funds, facing $1.8 trillion in over-spending this year. Asian bankers are not likely to loan that much money to the U.S. this year in fear of fanning inflation. So the US Treasury and Federal Reserve must resort to printing the money, a practice that will surely diminish the purchasing power of the US dollar. Federal tax revenues are rapidly declining as more and more tax payers face job layoffs and home foreclosures.
Governments are known to distract their citizens from the realities of a collapsing economy by issuing declarations of war or other contrived emergencies. A flu pandemic would serve as a perfect cover for the sour economy, brought on by loose lending practices and other excesses that were not opposed or detected by regulators.
Ian Mathias wrote this yesterday: "The FDIC will provide their second-quarter report tomorrow, which among other things will include a look into the DIF and their infamous bank 'problem list' ... could get ugly. We’ll keep you up to speed."
Well, the FDIC has not released the report today as of 7:54 pm CDT, so we will have to wait until tomorrow or another day. I will be interested to see whether the deposit insurance fund (DIF) even has a balance by now and how the troubled bank list is shaping out.
What are the practical implications of all this? First, if the FDIC's resources have been depleted, the organization will have to tap its line of credit with the Treasury Department. This will add to the growing budget deficit and will engender less confidence within debtors abroad, notably Asia. Secondly, if bank depositors lose confidence in the system, start to "panic," and withdraw their funds, a dreaded "bank run" could lead the federal government to declare a "bank holiday" (as was done in 1933 under FDR) to suspend payments from banks to depositors. Your deposits would be frozen in such a scenario. Could this happen? It has happened. Of course it can happen again.
I'm not necessarily suggesting withdrawing all your money from your bank. You can do so if you believe this is the most prudent course of action, but I would at least recommend having a contingency plan in the event that a bank run and bank holiday should occur in the near future. The fractional reserve banking system is inherently unstable, and when statist backup plans start to fall apart, the system can easily totter on the verge of collapse.
posted by C.S. Hayden @ 7:55 PM
2 Comments:
There is an FDIC board meeting today at 3:30 to discuss some of the failed banks and capitalization. The webcast is available to view online for the public. It is listed on the front page of the FDIC site. I do not know if the 2nd quarterly report will be released at that meeting.
Good, thanks for the heads-up, anon.
BTW, I should have included this link in my post: http://www2.fdic.gov/QBP/qbpSelect.asp?menuItem=QBP. And I just discovered this: http://www.vodium.com/MediapodLibrary/index.asp?library=pn100472_fdic_quarterlybankingprofile&SessionArgs=0A1U0100000100000101. Looks like something is scheduled for tomorrow at 10 am.
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