Labor Day weekend started with another bank failure; this time in Georgia. That is number 10 for the year. Another few hundred million is lost by the Federal Deposit Insurance Corporation (FDIC) fund as a billion-dollar, five-branch bank disappears.
The weekend also saw a few of us back at Leen’s Lodge in Maine, talking informally about how far this credit market crisis has to go before it hits bottom. None of us are misled by the 2nd quarter GDP number, which had a “puff” because of inventories and which also reflected the federal stimulus package.
We expect the rest of the year to be bleak. The list of problem areas is well known. We won’t dwell on housing or autos or the related consumer areas or energy costs (Gustav added). Let’s get right to the banks.
Despite some earlier media reports that IndyMac was on the first-quarter FDIC problem bank list, we disagree with that conclusion. The first-quarter list had 90 banks, according to the FDIC. The asset size of the total 90 banks was $26.3 billion. IndyMac was a $32 billion failure. Therefore we conclude that it wasn’t on the list.
That means a $32 billion failure went from not making the list to an FDIC loss of billions in about 100 days. Remember that the FDIC keeps the list confidential. They fear giving out the names on the list would trigger runs on those banks. They are probably correct.
At the end of the 2nd quarter the list was enlarged to 117 banks. IndyMac’s actual failure happened in July, so it will end up reported as a 3rd-quarter event. It was one of the 117 banks listed on June 30th. The Office of Thrift Supervision (OTS) has disclosed that.