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Saturday, August 15. 2009,  Mish's Global Economic Trend Analysis


Without FDIC, banks like Colonial, Bank United, Corus Bank, and possibly even banks like Washington Mutual would have failed long before they mattered.

By offering above market rates on CDs, those bank attracted plenty of capital to the detriment of banks lending responsibly.
In order to offer high rates on CDs and deposits, the banks had to take high risks.

Bank United and Corus Bank funded all sorts of risky housing projects including condo towers in the biggest bubble cities.
Colonial Bank is under investigation for Fraud.
Bank Failure Friday is in full swing.
Tonight there were 5 more failures, numbers 73 through 77 on the year.
In the biggest failure since WaMu, BB&T Takes Over Colonial.

The failure of Montgomery-based Colonial followed a Florida expansion that saddled the lender with more than $1.7 billion in soured real-estate loans.

Colonial’s failure will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said.
Below is a graph showing the DIF capital as a percentage of total bank deposits insured by the FDIC.
Note that this graph is based on the old insurance limit with a maximum coverage of $100.000/account.
This limit has been changed to cover up to $250.000/account until January 1st 2014.
Estimates say that the change increases the deposits covered under FDIC insurance to approximately $6 trillion in total.



The current reserve ratio of 0.014%1 strongly indicates how bad this crisis has affected U.S financial institutions.

With Tonight's bank failures, the cost to the FDIC's Deposit Insurance Fund is estimated to be $781.5 million.
If indeed $641 million was all that remained of the DIF, the FDIC is now bankrupt.
Of the $641 million left, Community bank used up 781.5 million and Colonial Bank $2.8 billion.