Deposit Insurance

F.D.I.C. Needs to Do Some Zombie Hunting

(THE NEW YORK TIMES) - Killing zombies isn’t just a job for horror movie heroines. It’s also the primary task of Sheila C. Bair, the head of the Federal Deposit Insurance Corporation, Breakingviews says.

Ms. Bair’s challenge has increased as the number of so-called problem banks on the F.D.I.C.’s watch list has spiked. But there is little reason the F.D.I.C. can’t exterminate the banking industry’s living dead, Breakingviews argues.

On Tuesday, the agency reported that 702 problem institutions were on its watch list as of the end of 2009. Those institutions had combined assets of $403 billion, or the equivalent of 3 percent of the nation’s economic output. While those figures may seem scary, the F.D.I.C. also managed to collect $46 billion in new cash from banks, bringing its total cash and liquid securities to $66 billion.

That may not seem to be much of a cushion, Breakingviews concedes. After all, the average estimated loss rate for bank failures since 2007 — excluding the collapse of the giant Washington Mutual — is 23 percent of assets.

Assuming no truly gigantic banks founder — that is, the ones considered “too big to fail” — the F.D.I.C.’s kitty is currently around $27 billion shy of being able absorb all its sick banks, Breakingviews calculates.

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