Last Fall it was 416 distressed banks. Now, according to FDIC Chairman, Sheila Bair, the number has risen to 775 distressed banks. And according to Elizabeth Warren, Chair of the Congressional Oversight Panel, she has identified nearly 3000 community and regional banks that are classified as "risky" due to the coming collapse of the commercial real estate market. Regardless of whose numbers you look at, Sheila Bair's near term numbers, or Elizabeth Warren's longer term numbers, the number of at-risk banks is growing by leaps and bounds.
The conclusion is that for the foreseeable future, the trend that will be realized, is continuous bank consolidation. Is this necessarily a good thing? Well, if you're one of the banks who gets to do the consolidating, it's a great deal for you because a significant amount of the risk in terms of troubled assets is being subsidized by the FDIC. The FDIC is also entering into loss share agreements with the acquiring banks further increasing the potential losses for the FDIC as additional loans fail in the coming months and years.
The conclusion is that for the foreseeable future, the trend that will be realized, is continuous bank consolidation. Is this necessarily a good thing? Well, if you're one of the banks who gets to do the consolidating, it's a great deal for you because a significant amount of the risk in terms of troubled assets is being subsidized by the FDIC. The FDIC is also entering into loss share agreements with the acquiring banks further increasing the potential losses for the FDIC as additional loans fail in the coming months and years.
Click to Play Robert Ian's GoldSeek Radio Commentary Download mp3
Keep in mind, in December of 2009, the FDIC required banks to prepay three years worth of insurance premiums which generated $45 billion of emergency funding. According to the New York Times, the FDIC was $8.2 billion in the hole at the end of the 3rd quarter in 2009. This year isn't half over and they have already exhausted nearly half of their prepaid $45 billion. At the rate banks are being closed and consolidated, it's a safe bet that the entire three years worth of FDIC insurance payments will be exhausted this year, if not this quarter. Then what happens?
Do they assess special insurance premiums on banks who have already prepaid for 3 years? If they do, that will result in permanently higher interest rates that will be cost shifted to all current and future borrowers. Perhaps when they run out funds, they will turn to the Treasury, who will bail them out and those costs will be shifted onto the backs of the taxpayers, who will once again, bail out the banks ad infinitum for generations to come, in the form of future tax receipts paid by your children and grandchildren. Regardless of how you stack the dice, the end result is higher costs for borrowers and taxpayers alike.
When you hear politicians say they are charging the banks for this cleanup, what they are really saying is they are charging the banks customers for the cleanup. And when the banks customers have reached their debt saturation level, which most are at right now, they will shift the cost of closing banks to the taxpayer. Just like the credit card companies raised interest rates from 9 to 29% for the slightest hiccup in a payment schedule, and robbed any remaining cash flow consumers might have had, and then had the audacity to seek bailout funds which will ultimately be paid for by those very consumers, the FDIC and the banks will do the same thing.
When the 3 years of prepaid insurance is exhausted in less than a year, the next round of costs will be placed squarely on bank customers and then on taxpayers. It's really that simple. You can run, but you can't hide. You can call it something else, but at the end of the day, every tax dollar, bailout dollar and every emergency spending initiative will be paid for, out of your future production.
Do they assess special insurance premiums on banks who have already prepaid for 3 years? If they do, that will result in permanently higher interest rates that will be cost shifted to all current and future borrowers. Perhaps when they run out funds, they will turn to the Treasury, who will bail them out and those costs will be shifted onto the backs of the taxpayers, who will once again, bail out the banks ad infinitum for generations to come, in the form of future tax receipts paid by your children and grandchildren. Regardless of how you stack the dice, the end result is higher costs for borrowers and taxpayers alike.
When you hear politicians say they are charging the banks for this cleanup, what they are really saying is they are charging the banks customers for the cleanup. And when the banks customers have reached their debt saturation level, which most are at right now, they will shift the cost of closing banks to the taxpayer. Just like the credit card companies raised interest rates from 9 to 29% for the slightest hiccup in a payment schedule, and robbed any remaining cash flow consumers might have had, and then had the audacity to seek bailout funds which will ultimately be paid for by those very consumers, the FDIC and the banks will do the same thing.
When the 3 years of prepaid insurance is exhausted in less than a year, the next round of costs will be placed squarely on bank customers and then on taxpayers. It's really that simple. You can run, but you can't hide. You can call it something else, but at the end of the day, every tax dollar, bailout dollar and every emergency spending initiative will be paid for, out of your future production.
