The FDIC said the deepening financial and economic crisis in the last quarter of 2008 had produced net losses across the banking industry of $26.2 billion, the first quarterly loss since 1990. The full year saw net earnings of $16.1 billion, also the lowest since 1990. The FDIC said the losses were due to "expenses associated with rising loan losses and declining asset values", with 32% of banks reporting losses in the fourth quarter; banks also set aside $69.3 billion in loan and lease loss provisions.
The 252 banks on the FDIC Problem List are now under closer regulatory scrutiny, and are more likely to be undercapitalised - only 171 banks were on the list at the end of September 2008, and as recently as the end of 2007 the list had only 76 names. Together, the banks on the list have assets of $159 billion.
Against these, the FDIC's deposit insurance fund has fallen by 45% over the quarter: higher-than-anticipated losses in late 2008 forced the guarantor to pay out $16 billion, leaving it with just $19 billion available. Another $22 billion has already been set aside to pay for anticipated losses in 2009. Saving IndyMac, the Californian mortgage lender that the FDIC took over in July, cost the fund between $8.5 billion and $9.4 billion, and the FDIC has promised to provide another $1.3 billion in capital to the bank after it returns to the private sector later this year. In response to this unexpectedly steep drop, the FDIC board is set to meet today to "consider adopting enhancements to the risk-based premium system", the guarantor said.
The FDIC has already increased its charges in response to the higher level of losses: on December 16, 2008 it raised assessment rates by 7 basis points for the first quarter of this year, raising charges from 5-43bp of domestic deposits per year to 12-50bp. It also confirmed it would consider raising charges still further on riskier institutions in the second quarter of this year. This was a response to the admission in October 2008 that the FDIC's deposit insurance fund reserve ratio had fallen below the legal minimum of 1.15%. Since then, the FDIC's situation has only worsened; at the end of December the ratio stood at 0.4%, down from 0.76% three months previously and 1.01% at the end of June.