Every major bank passes stress test from the US Federal Reserve

507 banks failed in the United States 2008-2014 inclusive, costing the Deposit Insurance Fund nearly $90 billion. Many millions of homes went into completed foreclosure.

 

Big banks all pass the Federal Reserve’s less vigorous stress tests

 

... All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. ...

 

Under this year’s hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. ...      

 

The 2024 benchmarks are a mixture.

 

Commercial real estate prices year over year fell more than 11% in 4Q2008, and more than 30% in 4Q2009. Planning for a future 40% decline seems appropriate.

 

The 2007 shock to the median price of houses sold was only 19% 1Q2007-1Q2009, with prices not recovering until 1Q2013. But since the median price of houses sold has jumped by about 31% just since 2020, planning for a future 36% decline is more than appropriate.

 

Unemployment peaked at 10% in October 2009. The civilian employment level contracted by almost 7 million 2007-2010 on an average basis, and did not recover until 2014, seven long years later. Pandemic unemployment peaked at 14.8% in April 2020. We got as high as 10.8% in November and December 1982. Great Depression unemployment peaked at 25.59% in May 1933. This one is a crap-shoot. 

 

The average price of the S&P 500 fell 50.8% between October 2007 and March 2009, but in 2007 the S&P 500 was valued about 26% above the long term mean, not 130% as in 2024.

 

That's the datum that worries me. Just to get to its historical median value of 81, the S&P 500 today would have to fall 61%, to about 2425.

 

Imagine the howls. 

 

 

 

  

 

Five bank failures in 2023 to date costing the DIF $35.569 billion

 11-3-23 Citizens Bank of Iowa: cost to the Deposit Insurance Fund is $14.8 million

7-28-23 Heartland Tri-State Bank of Kansas: cost to the DIF is $54.2 million

5-1-23 First Republic Bank of California: cost to the DIF is $13.0 billion

3-12-23 Signature Bank of New York: cost to the DIF is $2.5 billion

3-10-23 Silicon Valley Bank of California: cost to the DIF is $20.0 billion

Bank failure No. 3 of 2023: First Republic Bank of San Fran Freako, California

 

The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion. This is an estimate and the final cost will be determined when the FDIC terminates the receivership.

More.

The cost of the Silicon Valley Bank failure to the Deposit Insurance Fund dwarfs the number one IndyMac failure, the Signature Bank failure cost will rank fourth highest ever

 SVB will cost the DIF $20 billion. Signature will cost $2.5 billion.

These are enormous sums.

Combined they represent a 17.55% hit to the $128.2 billion balance of the Deposit Insurance Fund as of 12/31/22.

Reported here and here.

SVB will rank numero uno in this list ahead of IndyMac's $12 billion.

Signature Bank will probably rank fourth ahead of Colonial Bank's $2.4 billion. The final costs are yet to be determined.

Until these two recent failures there were just six institutions in the billion dollar or higher club for DIF bailouts.

FDIC member institutions fund the DIF through FDIC-imposed assessments.

It is received opinion that these bailouts will cost the taxpayers nothing. 

It is a fact that the tax-paying customers of these banks end up paying, through high interest rates on loans and effectively zero return paid by the banks on deposits. 

Bank Failure Friday: Second bank failure of 2020

The First State Bank, based in Barboursville, West Virginia, failed today, costing the FDIC Deposit Insurance Fund $46.8 million.

The FDIC insures deposits at the nation's banks and savings associations, 5,177 as of December 31, 2019.

ICYMI, I know I did, which is how they want it: Bank failure no. 1 of 2020 occurred on Valentine's Day

Yeah, always on a Friday night, even better when it's a holiday.

It's not that the failures always happen on a Friday. It's just when the FDIC likes to pull the trigger. Put the animal down, nice and quiet like, when fewer people are paying attention.

Ericson State Bank in Ericson, Nebraska, failed on Feb 14, costing the FDIC's Deposit Insurance Fund $14.1 million.

The FDIC insures deposits at 5,256 banks and savings associations as of September 30, 2019, according to the latest bank failure press release from the FDIC.

There were four bank failures in 2019, none in 2018, eight in 2017 and five in 2016.

While we weren't looking we just had bank failures two, three and four of 2019: Two on October 25 and one on November 1

Louisa Community Bank in Louisa, KY, failed costing the FDIC Deposit Insurance Fund $4.5 million.

Resolute Bank in Maumee, OH, failed costing the FDIC Deposit Insurance Fund $2.2 million.

City National Bank of New Jersey (“City National”) in Newark failed costing the FDIC Deposit Insurance Fund $2.5 million.

As of June 30, 2019 there were 5,303 institutions in the FDIC system.

There were zero bank failures in 2018, but we got the first one of 2019 last night

The Enloe State Bank, Cooper, Texas, failed last night, the first bank failure in the US since Dec. 15, 2017. A bank failure hasn't occurred in Texas since 2013.

The failure in Texas is estimated to cost the FDIC's Deposit Insurance Fund $27 million.

The FDIC insures the deposits at 5,362 institutions as of March 31, 2019.

Federal Reserve banks rob the people a minimum $400 billion annually through ZIRP, so far have paid just $125 billion in fines for financial crisis crimes

Bank of America is a chief offender appearing in the lists. The latest fine against it, among others, is detailed here:

"The Bank of America deal announced Thursday, the government’s largest-ever settlement with a single company, means the nation’s second-biggest bank will shell out $16.65 billion over allegations that it knowingly sold toxic mortgages to investors. ... The sum surpasses Bank of America’s entire profits last year and is significantly higher than the $13 billion it offered during negotiations in July."

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The story doesn't mention the nearly $90 billion paid out by the FDIC Deposit Insurance Fund for the failed banks which have numbered over 500 since 2007, the funds for which are supplied by insurance premiums extorted from the honest banks. But it is the depositors who end up paying for that cost of doing business in the end. Nor does it ruminate on the effects of the Federal Reserve's Zero Interest Rate Policy, which allows those first in line for money to get it rock bottom cheap and speculate with it. The financial sector now rivals the household sector in stock ownership. Savers meanwhile get the crumbs which fall from their masters' table. Ten years prior to 2007 the country was finally beginning to recover from a decade long Savings and Loan crisis which witnessed over a thousand institutions fail, costing the taxpayers directly about $130 billion. No sooner was that over in 1995 when the wizards of smart conspired to abolish the Glass-Steagall banking regime in 1999, precipitating the recent panic less than a decade later. And, of course, the Great Depression after 1929 followed closely on the heels of the establishment of the Federal Reserve itself in 1913, signed into law by one Woodrow Wilson, Ph.D., Johns Hopkins University. Over 700 banks failed in 1930, and 9,000 over the ensuing decade. The professionals have a long history of failure. The prudent avoid them.

The number of participating institutions in the FDIC has dropped over 32% since the year 2000

Between October 2000 and the close of 2013, FDIC insured institutions have dropped from 10,101 to 6,812, a decline of 3,289 or 32.6%.

Of those, 521 were outright bank failures, 497 of which occurred from February 2, 2007 to February 28, 2014. Before that there were just 24 failures going back to October 2000.

The cost of the 497 failures to the FDIC's Deposit Insurance Fund has been $89.26 billion.

The failure of IndyMac Bank FSB of Pasadena, CA in July 2008 was the costliest to the FDIC: $13.2 billion.

BankUnited FSB of Coral Gables, FL was a distant second at $5.9 billion in May 2009.

Colonial Bank of Montgomery, AL cost the FDIC $4.5 billion in August 2009.

WesternBank Puerto Rico cost the FDIC $3.2 billion in April 2010.

And rounding out the top five is Amtrust Bank of Cleveland, OH which cost the FDIC $2.97 billion when it failed in December 2009.

US Bank Failures 2009-2011 See $3.92 Billion In Uninsured Deposits Lost

Click each to enlarge.

Losses from 2012 payoffs remain as yet unconcluded at the FDIC website. These things do take time.

"Payoffs" involve those relatively few institutions for which no one could be found to Purchase and Assume the failed bank. Typically depositors with funds in excess of FDIC limits are still made good in P&As, but not in Payoffs.

By way of contrast, bank failures have cost industry far more directly than customers directly during the late financial crisis. Uninsured depositors may have lost nearly $4 billion, but the Deposit Insurance Fund of the FDIC, paid into by every member bank, has had to shell out $87 billion from 2007. Just think what you'd have been hearing in the US if that sum had been sought from the uninsured depositors, who with $4.7 trillion today certainly have pockets deep enough! America actually treats its depositors, both insured and uninsured, far more fairly than in the EU, which is one important reason why the euro is doomed and net foreign investment in the US is gaining.

Uninsured deposits in little Cyprus are going to get hit to the tune of $6.5 billion to shore up its banks, which in turn are in trouble only because they held the bonds of Greece, on which the infamous Troika -- the European Central Bank, the European Union and the International Monetary Fund -- demanded haircuts in excess of 50% for the bailout of Greece. The Troika is actually directly responsible for causing the problem in Cyprus which the Troika now demands Cyprus depositors pay for. No wonder the European periphery hates the center.

Expect capital flight from Europe to accelerate to the US.

On 4th Anniversary Of TARP, 12% Of Banks Are Still In Trouble

nonperforming bank loans as percentage of total

The FDIC reports as of June that it has 7,246 member banks with $14 trillion in assets. Four years ago there were 8,384 member banks with assets of $13.6 trillion. Bank failures and consolidation in the industry have reduced the total membership by over 13 percent in the interim.

Bank failures have cost the Deposit Insurance Fund, funded by member premiums, in excess of $80 billion, costs which are inevitably passed on to bank customers. TARP was deliberately morphed into a fascist capital injection scheme when it became clear that identifying and buying toxic mortgages was an unworkable solution, cooked up as it was in a panic. The capital injections effectively made taxpayers unwilling stockholders in troubled "financial" institutions, some of which were not commercial banks to begin with but were allowed to become so to obtain protection.

Meanwhile bank nonperforming loans in the US continue at a high level, over three times higher than prior to the financial crisis in 2008, despite TARP's measly billions, and despite the real action trying to circumvent free-market capitalism involving trillions of dollars of Federal Reserve liquidity interventions.

An unofficial list of problem banks tracked here currently shows 874 institutions still under some form of FDIC supervision for irregularities of one kind or another, four years after the passage of the Troubled Asset Relief Program signed by President Bush on October 3, 2008.

Sen. Barack Obama voted for the TARP program in the US Senate, as did Sen. John McCain, his opponent for the presidency, joining the rest in the US Congress who wanted to make it appear they were doing something about the crisis. In the wake of TARP the stock market crashed anyway in the succeeding month, preparing the way for the debacle of March 2009 five months later. The mortgage market remains effectively dead, along with housing, net worth, and employment, zombies all. 

How much better off we would be today if we had simply embraced the failure prescribed by capitalism instead of denying it. Bankruptcy courts would have been busy selling off assets to responsible actors, debts would have been adjudicated, and a few high profile bad players may have actually gone to trial, and jail, by now.

Instead it's just more of the same: government of the bankers, by the bankers, and for the bankers.

Deposit Insurance In Spain Is Meaningless

If you want to know why 100 billion euros have fled Spain in the first quarter of this year, here's why:

In Spain there are about 800 billion euros of insured deposits, but the deposit insurance fund has assets of just 7.9 billion euros, and 5.3 billion has already been committed to troubled savings bank Caja de Ahorros del Mediterraneo (CAM), Barclays analysts estimated.

Bank Failures Since 2008 Have Cost The FDIC Deposit Insurance Fund $83 Billion

Based on data gathered here.

The three worst months of the crisis were July 2008, August 2009, and April 2010 when the FDIC's Deposit Insurance Fund had to shell out $8.8 billion, $7.5 billion and $9.4 billion respectively.

Mish's Whopper of the Week

"Bank closings remain elevated. We have had 106 bank failures so far in 2011."

-- Mike Shedlock, here on Friday

The rate of failure this year so far has fallen to 2 per week from 3 per week last year.

Failures year to date number 64, not 106.

Figures reported here in May put costs of failures to the FDIC's Deposit Insurance Fund through 2010 at $24.18 billion. That estimate is 9 percent more than previously estimated.

Mish thinks this is one among many indicators showing continuing deflation in the economy.

Don't bailouts of this kind get counted as government expenditures accruing to GDP? Counting them as such would make GDP less reliable as an indicator of growth in the economy, but you must admit the number is tiny in a $15 trillion economy, not even 2/10ths of 1 percent.

Bank Failure Update: FDIC's Deposit Insurance Fund Balance is Minus $19.8 Billion

The insolvent banks are being bailed out by an insolvent FDIC.

From Richard Suttmeier for Minyanville, here:

The FDIC Deposit Insurance fund has now been drained by $2.2 billion in the fourth quarter to date, which brings the DIF Deficit to an estimated $19.8 billion. The FDIC has already burned through the assessments for 2010. The assessments for 2011 and 2012 have been pre-paid at $15.33 billion per year. ...

The three failed banks last Friday had extreme overexposures to C&D and CRE loans. C&D exposures for the three overexposed were between 143.7% and 654.7% versus the 100% regulatory guideline. The CRE exposures were between 896% and 1397% versus the 300% of risk-based capital regulatory guideline. The CRE loan pipelines were between 96% and 99% funded versus a healthy pipeline of 60%.

CONGRESS OF IDIOTS BAILS OUT THE STUPID

My favorite line from the following is "but it will help keep . . . I slightly above poverty level." Just how people who talk that way end up accumulating such large sums is something of a puzzle.

From "Retroactive Nonsense" by Thomas Brown, here:

[S]ometimes a proposal is so idiotic, so misconceived, and so harebrained that it’s impossible to ignore. In Washington yesterday, House and Senate conferees on the financial regulation bill agreed on one such nutty item, when they voted to make retroactive the increase in the FDIC’s insurance limit, to $250,000 from $100,000, back to January of 2008. . . .

What can these people be thinking? Congress’s move yesterday—which essentially bails out 8,700 ex-IndyMac depositors who were stupid enough to have more than the then-FDIC limit on deposit there—aren’t poor downtrodden souls who’ve been screwed by the system. They’re rich. Each has more than $100,000! Some of them, a lot more! They’re so wealthy, in fact, they could afford to let that much money languish earning passbook rates. In the long and unseemly line of bailouts that have happened as the credit crunch has progressed, these are the last people—the very last people—who should be granted a special, surprise place at the federal trough.

But instead, our idiot representatives feel sorry for them. Is there no minimum level of personal responsibility Congress won’t insist that people, or at least wealthy people, accept?

Apparently not. Meanwhile, if the group the Los Angeles Times talked to yesterday is any indication, the beneficiaries of this new windfall are a bunch of pathetic fools.  “It’s nothing to the government,” one of them, a retiree name[d] Craig Phinney, rationalises, “but it will help keep my wife and I slightly above poverty level for a couple of more years.” Uh-huh. Actually, the move will cost the Deposit Insurance Fund around $200 million. And Mr. Phinney, if you’re really so concerned about staying above the poverty line, why not take a moment (and it won’t take much more than a moment) to learn about how federal deposit insurance actually works? It’s pretty common knowledge that there are limits to coverage. Nor was it any secret that IndyMac was a shaky institution before it was finally seized. If you’re so close to the poverty line, why did you have so much money at IndyMac in the first place?

In the meantime, the moral hazard that Congress’s move yesterday creates is not unsubstantial. I can’t imagine why large depositors won’t be more willing now to shop for yield at institutions they know are less than completely sound. Then, when one fails, depositors will point to the precedent set yesterday and demand that they, too, be made whole. So at the margin, the conferees’ vote yesterday will make the financial system less strong rather than more so. This is reform?

You’re thinking that I’m being too tough on Congress and the hapless depositors it’s helping. No. The government has bailed out the automakers. It’s bailed out big banks. It’s shoveling stimulus money in order to bail out the states. Now it wants to bail out people who have so much money already that their bank balances exceeded FDIC limits? It’s insane.

FDIC In The Red . . . 140 Failed Banks Year to Date . . . $30 Billion Down, $100 Billion To Go

The Associated Press is reporting:

The 140 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the government-backed deposit insurance fund - which has fallen into the red - more than $30 billion so far this year. The failures compare with 25 last year and three in 2007.

The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years. ...

If the economic recovery falters, defaults on the high-risk loans could spike. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.

Go here for the rest of the story.

The Banks Must Be Restrained

Total bank failures year to date reached 106 yesterday, bringing the total cost to the FDIC Deposit Insurance Fund this year to about $25 billion, with only about $100 billion to go, according to the FDIC's own projections.

The FDIC likes to take over banks on Friday afternoons, believing you won't notice it as readily with the weekend intervening before the next regular day of business. They wouldn't want you to panic, you know. So people who watch this stuff carefully like to call the last day of the work week "Bank Failure Friday." Yesterday, I noticed that the 106th bank to fail this year was in Itasca, Illinois, near where I used to live, and it reminded me of these words posted by Mish (who lives in Illinois) in July of 2008:

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Since those words were penned, the FDIC is planning to charge premiums several years forward to banks to the tune of $45 billion, its deposit fund is down to about $10 billion, and its troubled bank list has ballooned to over 400 banks, with nearly 300 in serious trouble. The FDIC expects to need at least another $100 billion for bailouts through 2013. Let's see, $10 billion on hand plus $45 billion charged forward = $55 billion. Only $45 billion short! Hmm. And you think we can afford to federalize health care?!

When you go down to the bank to ask for a loan to buy a house, you typically get leverage of only 5 to 1 (20% down), because nobody's got your back but you. So why does the bank get leverage to the tune of 25 to 1 (4% down)? Because of the taxpayer guarantee, that's why. And "rules" which let them, written by politicians on the take. It's high time we ended all that or this country will surely go bankrupt. Consider Citigroup.

It alone has $800 billion in "assets" off the books, and looks to be in serious trouble: suddenly this week it ended its gasoline credit card program and dramatically hiked interest rates on its other cards. Forget about the FDIC covering Citigroup with forward charged premiums to its member banks if it goes under. There isn't enough money there. The taxpayer will be on the hook. Again. Are you mad as hell yet? Are you going to take it anymore? Vote the bums out.

No wonder Jesse keeps saying, "The banks must be restrained . . . before there can be any sustained recovery."