FIL-2-2008

January 14, 2008

FDIC home page Link:

""The FDIC is gearing up for the prospect of a large bank failure. FDIC data indicate... 65 institutions with assets of $18.5 billion on its list of 'problem' institutions."

With housing in a free fall, and banks eating 100,000-plus mortgages each month, the stock markets are fearful that the once-vaunted US banking system is on the edge of the abyss. Take Citigroup, for example. One of the world's largest banks, Citi has seen its stock price cut in half, losing an estimated $130 billion in market capitalization in 7 months.

This past January 14, the FDIC published an update clarifying its procedure and role for when a bank fails. They did this because of the unrelenting wave of home foreclosures that are now occurring at a rate of 2.8 every single minute.

With banks buckling under the weight of mounting losses, the FDIC put out an update titled "Processing Deposit Accounts in a Bank Failure." The FDIC writes:

"The largest insured institutions are growing increasingly complex. The proposed rule would help facilitate an insurance determination... if one of these institutions were to fail."

"Fail" is a sanitized code word for when a bank goes belly-up. In other words, the bank can't meet its loan payments and, even more importantly, doesn't have enough money to meet "a run" by depositors like you and me. When a bank "fails" the FDIC steps in and insures the money you have in your savings account.

The FDIC last updated its deposit insurance determination process in 1999. The largest number of deposit accounts in a failed institution which the FDIC has had to make an insurance determination was about 175,000 for NetBank on September 28, 2007. Today some of the larger banks have more than 50 million deposit accounts.

Is the FDIC preparing for a banking crisis?

FDIC Chairman Bair, recently testified at the U.S. Senate and said: In 2009, more than 1.7 million adjustable subprime mortgages (ARMs) are scheduled to be reset upwards.

The future for the American economy looks very uncertain. One bank failure could cause a domino effect across the entire economy that would result in a cataclysmic vortex of wealth destruction.

The Federal Reserve will continue to cut rates in an attempt to save housing and the US banking system. This will have a negative impact on the value of the US dollar - which currently sits at historic lows." G.MacCoach