What Is The FDIC Preparing For?

Is Bob Chapman of the International Forecaster correct when he says that his sources state that there are actually 2,035 banks in trouble and that in 2010, he expects between 2500 and 3000 bank failures? (See below post for audio.) Is he also correct when he states that this will cost the FDIC some $800 Billion to $1 Trillion dollars?  What about that $800 Billion that Fannie and Freddie supposedly need?  I’m still searching for confirmation of those exact numbers.

Is this what Chapman is talking about?

Bank Agency Boosts Budget 35%

The Federal Deposit Insurance Corp. in the next year plans to add more than 1,600 staffers, mostly to handle bank failures, and is pushing its budget up 35% as the number of tottering banks climbs.

More than 130 banks have failed this year, and the agency’s inventory of assets in liquidation has more than doubled from the beginning of the year to $36.8 billion through the end of November. The FDIC has also agreed to share future losses on the assets of more than 80 failed banks, representing $108 billion in additional exposure.

In the agency’s 2010 operating budget, released Tuesday, the FDIC would spend $2.5 billion to fund its bank failure operations out of a total budget of $4 billion. The agency’s entire operating budget for 2009 was roughly $2.6 billion.

“It will ensure that we are prepared to handle an even larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions,” FDIC Chairman Sheila Bair said in a statement.

In addition to expecting bank failures to increase, the FDIC said it expects the number of banks at risk of failing to rise in 2010. The FDIC has twice this year demanded banks pay billions in additional fees in order to keep its deposit-insurance fund solvent.

Regulators give banks a secret rating of 1 through 5 as a measurement of their health. Banks with a 1 rating are considered the healthiest.

“The number of 3-, 4- and 5-rated institutions has increased by over 80% thus far during 2009 and is expected to continue to increase next year,” the FDIC said. The forecast could mean further increases to the FDIC’s “problem list” of troubled banks, which stood at 552 at the end of the third quarter. (emphasis mine)

11.26.09:

12 thoughts on “What Is The FDIC Preparing For?”

  1. I guess this is the bad news you were talking about. Sent this to all the loved ones, they can decide for themselves. One day there will be positive news just hand in there.

  2. The Treasury has been pumping tons of dollars into the system, creating a liquidity trap (per Roubini and Krugman). That excess liquidity has to be mopped up at some point (Roubini) so the quantitative easing has to be reversed. That has to be done prior to an interest rate increase which should happen sometime during Q4 ’10 or Q1 ’11.

    The second wave of the housing crisis is happening between now and the first half of next year as the 5-year ARMs come due. That’s what will trigger a new wave of bank failures that’ll put renewed pressure on the FDIC.

    Right now, the stock market is being supported by the dollar carry trade which will go poof next year at some point. The trigger will be the slightest hint that the Fed will raise interest rates. Before that happens, though, the big money will be heading for the exits.

    The only stocks that’ll hold up next year are the ones with no debt and tons of cash on the balance sheet. A great example is AAPL. It went down over $3 today (Thu) but was the money flow leader for buying on weakness:

    http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html?mod=mdc_leader

    Options expiry is Friday and the max pain level is 195. Next week, the stock could go in any direction or stay in a range. Sales, though, are terrific so I expect the stock to move higher for a while. RIM had great earnings after the bell so AAPL went up in sympathy with RIMM.

    Stocks might hit a peak in the spring but after that, it’s all very risky.

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