The Federal Deposit Insurance Corp.’s (FDIC) list of troubled banks has increased by 30 percent this quarter, and this jump is causing the FDIC and the banking community to prepare for tomorrow’s problems today.
The FDIC may have to borrow money from the Treasury Department to handle an expected wave of bank failures coming down the road, according to the Wall Street Journal.
It would not be surprising if this were to occur, according to Chris Whalen, managing director of Institutional Risk Analytics. In an interview with CNBC, Whalen said the FDIC needs a backstop.
“They need about a half a trillion dollars in borrowing authority, and they need a vehicle to own these banks while we triage them and sell them.”
Whalen added that he expects big bank failures might be on the way.
“It depends on the loss rate,” he said. “If we are way over 1990s levels, by say the third quarter, then I would tell you there’s going to be some institutions that may not be able to raise private capital and may need a bridge.”
The discussion was prompted by an announcement Tuesday by the FDIC that it was increasing the number of banks on its watch list to 117, up from 90 in the first quarter.
“We don’t think this credit cycle has bottomed out yet,” said FDIC Chairman Sheila Bair at a press conference Tuesday. “I don’t like to make predictions, but I think it’s going to continue to be very challenging, and as I said I think the number of banks and assets on the troubled bank list will continue to go up.”
By Brooke Sopelsa, Writer/Producer
27 Aug 2008
Source: CNBC