Of even more concern, IMO, is that the insurance fund now has a ratio of 1.01 reserves to losses. The decline in the fund balance caused the reserve ratio to fall to 1.01 percent as of June 30th from 1.19 percent one quarter earlier. Because the reserve ratio is now below 1.15 percent, the Federal Deposit Insurance Reform Act of 2005 requires the FDIC to develop a restoration plan that will raise the reserve ratio to no less than 1.15 percent within five years.

/tricia

The FDIC is talking about borrowing money from the Treasury (again).

"I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses," Chairman Sheila Bair said in an interview with the paper.

Bair said such a scenario was unlikely in the "near term." With a rise in the number of troubled banks, the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.

The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. "

Links that might be useful:
FDIC may borrow money from Treasury
www.reuters.com/articlePrint?articleId=USBNG28670420080827

As demand jumps, Mint runs out of one-ounce gold coins
latimesblogs.latimes.com/money_co/2008/08/gold-market-bul.html

The FDIC is talking about borrowing money from the Treasury (again).

"I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses," Chairman Sheila Bair said in an interview with the paper.

Bair said such a scenario was unlikely in the "near term." With a rise in the number of troubled banks, the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.

The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. "

Links that might be useful:
FDIC may borrow money from Treasury
www.reuters.com/articlePrint?articleId=USBNG28670420080827

As demand jumps, Mint runs out of one-ounce gold coins
latimesblogs.latimes.com/money_co/2008/08/gold-market-bul.html

I just settled my dad's estate, haven't cashed the check yet, now I don't know what to do..

/t

The FDIC knows which banks are going to fail but they can't tell the public because that would cause a run on the banks. Remember how Senator Schumer was accused of causing IndyMac to fail? HE isn't the one who told them to play russian roulette with their depositors money. Like Schumer explained, "The regulator here was asleep at the switch, The administration is doing what they always do, blaming the fire on the person who called 9-1-1.""

roselvr-"All well and good if you use the site.. I've never been there and have no clue where to look. I clicked a few links and didn't see anything. Stuff like this is not my thing..."

I find the FDIC website somewhat dreary reading as well. I've posted a few links that say what banks are in trouble and what you might want to do with your money in the meantime. Remember, I am NOT a banker, so please take these with a grain of salt! You might want to read the archives as well so you can see how far in advance this guy (Martin Weiss) has been warning readers about this coming problem. I subscribe to the free newsletter but have never invested with his company. Bethesdamadman was kind enough to point out an SEC violation his company had a couple years ago, but even keeping this in mind, you can still find useful info that is easier reading than the other, dry stuff!

T-bills aren't paying much, but this is where I am putting some of my 'keep safe' money until this mess clears up.

Links that might be useful:

"X" List Transcript, Part II/Get ratings on your bank
by Martin D. Weiss, Ph.D.
www.moneyandmarkets.com/issues.aspx?X-List-Transcript-Part-II-2099

Latest FDIC Report Reads Like a Horror Novel
www.moneyandmarkets.com/issues.aspx?Latest-FDIC

BankUnited Financial Corp. is also in trouble. Will the FDIC have enough money to cover these banks?

BankUnited is Florida's largest bank with 85 branches in 13 counties and with total assets of $14.2 billion.

In the first three quarters of last year, it reaped a profit of $23.2 million. The first three quarters of 2008? $200 million in losses!

Why? Because a whopping 58% of the bank's "assets" are option ARMs.

Like other adjustable-rate mortgages, option ARMs lure in unqualified homebuyers with bargain-basement interest rates ... then jack up rates â€" and loan payments â€" in later years. What's worse, each month, an option ARM gives borrowers three choices:

Option #1. Pay principle and interest normally.

Option #2. Pay interest only.

Option #3. Make a bare minimum payment that doesn't even cover all the interest due.

What happens to the unpaid interest? It gets tacked on to the unpaid balance.

The big time bomb: Borrowers are only allowed to do that for a pre-specified period of time or until their loan balance rises to a certain threshold, typically 110% or 115% of the original loan amount.

When that happens, they have to make the full payment â€" principle AND interest ... which can be many times higher than the minimum payments.

That's why massive numbers of borrowers are choosing a fourth "option" which no one anticipated: No payment whatsoever. In other words, DEFAULT.

And that's also why ...

The Amount of Non-Performing Loans
At BankUnited Has Surged 770%
Just in the Last Twelve Months!

And if you think that's bad, the loans the bank doesn't expect to be repaid has soared a staggering 1,964% since this time last year.

Meanwhile, the non-performing loans in BankUnited's portfolio are rising at the rate of 10% per month â€" and the number of foreclosures in the bank's inventory is up 18% in July alone.

Now, the government is demanding that BankUnited raise $400 million of new capital and offset losses on its $10 billion of home loans.

Bottom line: BankUnited's stock is already down 91% in 12 months. And analysts are warning that it's likely to fail!

BankUnited Is DEFINITELY
Not the Only Bank in This Soup!

If BankUnited were an anomaly, it wouldn't be such big news. But the fact is, the cancer that's brining down Florida's largest bank has also reached a raft of other financial institutions stuck with massive amounts of option ARMs.

* At Bank of America, the $25.4 billion in option ARMs it acquired when it bought Countrywide are sinking fast. A whopping 72% of the borrowers aren't even paying all the interest due on these loans. One in eight is at least ninety days late on payments.

* At Wachovia, the story is similar: Wachovia bought Golden West Financial at the peak of the real estate bubble in 2006 and as a result now has $122 billion of option ARMs in its portfolio â€" a staggering 25% of its total assets. Some 14% of those option ARM customers already have zero â€" or negative â€" equity in their homes. And that's only going to get worse as home prices depreciate further.

* And at banks all across the country, we see the same pattern....

A link that might be useful:
Survival of Big Florida Bank In Doubt
www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=2151

You kind of hit me with your 2nd post, those are the 2 banks we use, Bank of America & wachovia :(

I think I'm going to do what my dad used to do and get a floor safe for my house. I'll go cash my check & get cold hard cash.

Sorry to be the bearer of bad news but at least you have a better idea of how to protect your savings until we know where everything stands. I've never been a fan of the 'cross your fingers and hope for the best' philosophy, especially when it comes to my money.

Because of the gross lack of accountability and culpability in the finance world these days, I'd much rather be in a position to protect myself than be told "Everything is just fine, no recession, keep all your money where it is...

"I think I'm going to do what my dad used to do and get a floor safe for my house. I'll go cash my check & get cold hard cash."

I'd be willing to bet you aren't the only one who is wondering if this might not be a good idea.

This is Tricia's post. I was hoping she might share some insight about what bankers or other people in the 'know' are doing with their investments these days...

My husband and I each have a checking account and we use 2 different major US commercial banks. We both keep our account balances under $1000 (yes one thousand) unless something specific comes up. Have done that for years as we'd rather have our money working more aggressively in other ways. We have all the rest of our liquid money in money market accounts at Fidelity. We have not moved any of it out of Fidelity, nor will we be. All the rest of our non-401k investments are in the stock market, bonds, life insurance or our house. I maxed out my 401k contribution early this year and DH is still making bi-monthly contributions to his out of his paycheck. He'll max out his contributions this year. The only changes we've made to our investments this year were done early and they were to reallocate our 401k balances. We met with our financial adviser in March of this year and had a full review done. We confirmed that we were happy with our basic stock/bond/cash allocation. Our time horizon for our stocks is 10-15 years.

Our mortgage is with Countrywide, as is our home equity line which has a $0 balance. I will be using this line for a few thousand later this month and I'll write 1 check to cover all I need. I'm not worried - some entity is always going to be willing to take our mortgage payments!

I would have absolutely no hesitancy about putting up to $100,000 into an FDIC insured account at Bank of America or Wachovia. Quite honestly, I think the original post in this chain is very similar to chicken little saying "the sky is falling, the sky is falling". While some financial entities clearly have been negatively affected over the last 18 months, to imply a widespread panic is around the corner is malicious fear mongering - in my opinion.

From this point on, I think some more smaller banks will fail, I know we're in a tighter economic period which is going to last probably another year or so, but it's not a bad recession. As long as the US $ is weak on the world stage, foreigners will definitely keep buying US goods. In general, I think things are being worked out in financial institutions (and that might mean some banks taking more losses). BUT this whole process is cyclical. It's happened before, it's happening now, and it will happen in the future.

Those who will have the rockiest road, in my opinion, are common stockholders of banks who have shorter term investment horizons. I think very very few depositors will be negatively affected.

The article I posted was informative & not fear mongering.

I disagree with dreamgarden's post quoting an article saying, "And at banks all across the country, we see the same pattern...."

That statement is a gross over statement, IMO.

It's a classic example of taking a couple facts (banks from several locations around the US & declining real estate portfolios) and putting those facts together to sound as if the majority of financial institutions are on the verge of collapse. It's misleading & untrue.

In fact, IMO, the entire article referenced by dreamgarden is what's fear mongering...not my original post.

We use several commercial banks including the one where my DH is employed but stay within the FDIC appropriate limits depending on the type of account. We've always taken that precaution...not just in this economic climate.

I am the 'proud' owner of Wachovia stock so I don't think it appropriate that I comment on the institution. :( lol

We are nearing retirement & have tightened our portfolio in the past 18 months now being about 5% heavier in cash. At maturity, we also moved our emergency fund from a regional bank we'd grown uncomfortable with to a mutual savings bank that was offering a promotional rate. That was a couple months ago...don't know what we'll do when it matures? :0)

Are the FDIC's reserves adequate? Well, apparently, they are under requirements at the moment based on my original article. Will the FDIC fail to pay insured depositors if we see a rash of bank failures? I don't have a crystal ball but we're sure not stashing cash under the rose bushes. IMO, if a financial institution the size of BAC goes down...we have much broader problems in the economy that aren't apparent today. BAC is a well diversified institution. I wouldn't hesitate to use BAC.

/tricia

Let's say I have a $95,000 1-year CD at 5% APY with a bank that fails. It doesn't mature for another six months. Do I just get my original $95,000 back? Do I get interest earned to date? Does the CD continue at the 5% to maturity?

(I don't have the rose bushes option: Japanese beetles 12; Sue 0.)

And then when you add in over 8000 credit unions and savings banks and savings & loans, the problem numbers stay very small.

"Involved in way too many conversations about a bank that was going down?"
What is that supposed to mean? Now that you are no longer working there, would you care to share what these specific problems were?

"I consider myself to be a well informed pretty recent ex-banker."

Did you know Fannie and Freddie were going to be taken over by the government over the weekend? Does it matter that their shares have plummeted over 90% in value over the past year? Do you have stock with either of these companies and did you buy or sell any shares within the past 6 months? Do you think the Fannie and Freddie CEOs that were pushed out by the government this weekend should be rewarded with fat pay packages, go on to live in massive homes and become high-paid consultants? Or do you think a jail sentence is in order?

>I would have absolutely no hesitancy about putting up to $100,000 into an FDIC insured account at Bank of America or Wachovia. Quite honestly, I think the original post in this chain is very similar to chicken little saying "the sky is falling, the sky is falling". While some financial entities clearly have been negatively affected over the last 18 months, to imply a widespread panic is around the corner is malicious fear mongering - in my opinion.

I find it both interesting as well as amusing that you would accuse tricia, a fellow member of the industry, of being a fear monger. She posted information about the FDIC that SHOULD be freely available to the public yet you think this is 'too much' information for the average taxpayer to be able to absorb without 'overreacting' in a way that might protect their life savings.

Sharing information with the public about damaging accounting scandals, questionable management, inadequate capital reserves and a crashing residential real estate market, is NOT fear mongering. I think most of the readers at the GardenWeb forums are mature enough to be able to tell the difference.

As for 'implying a widespread panic". What is your opinion about the many high-ranking government officials in the 1970s who swore the S&Ls were safe, even as thousands of thrifts were failing all around them? How about those FDIC and Federal Reserve officials in the 1980s who vehemently denied the threat to commercial banks, even as the bank failure rate surged to the highest since the Great Depression? Or the state insurance regulators in the 1990s who swore to the safety of annuities and life insurance policies, even as six million policyholders were being trapped in failed companies?

Last but not least, lets not forget the auditing firms like Arthur Andersen, KPMG, and Deloitte and Touche that facilitated or even encouraged accounting distortions and cover-ups and those major Wall Street firms of the early 2000s that consistently affirmed "hold" and "buy" ratings for the shares of hundreds of companies that were going bankrupt.

What has changed to correct this? Nothing. The lies continue, no one gets punished and fat cat CEO's continue to prosper at the TAXPAYERS expense. Is it any wonder why investors don't want to play this 'casino game' anymore, or why depositors don't trust their banks to tell them the truth?

I think it shows utter contempt for the American people to assume we are too stupid to be able to be told the same things that insiders already know about our crippled economy. I don't know when the reality of this will dawn on the "denialists." But when it does, I'm sure they will be remembered along with some of the 'experts' (below) who thought everything would be just fine 80 years ago.

September 1929
"There is no cause to worry. The high tide of prosperity will continue." â€" Andrew W. Mellon, Secretary of the Treasury.

October 14, 1929
"Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board." â€" New York Times

December 5, 1929
"The Government's business is in sound condition." â€" Andrew W. Mellon, Secretary of the Treasury

December 28, 1929
"Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression." â€" Associated Press dispatch.

January 13, 1930
"Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today." - News item.

January 21, 1930
"Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction." - News dispatch from Washington.

January 24, 1930
"Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast." - New York Herald Tribune.

March 8, 1930
"President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days." - Washington Dispatch.

May 1, 1930
"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover

June 29, 1930
"The worst is over without a doubt." - James J. Davis, Secretary of Labor.

August 29, 1930
"American labor may now look to the future with confidence." - James J. Davis, Secretary of Labor.

September 12, 1930
"We have hit bottom and are on the upswing." - James J. Davis, Secretary of Labor.

October 16, 1930
"Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment." - Charles M. Schwab.

October 20, 1930
"President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President's special committee on unemployment." - Washington dispatch.

October 21, 1930
"President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter." - Washington Dispatch

November 1930
"I see no reason why 1931 should not be an extremely good year." - Alfred P. Sloan, Jr., General Motors Co.

January 20, 1931
"The country is not in good condition." - Calvin Coolidge.

June 9, 1931
"The depression has ended." - Dr. Julius Klein, Assistant Secretary of Commerce.

And then when you add in over 8000 credit unions and savings banks and savings & loans, the problem numbers stay very small. "

I think it will remain to be seen if the 'problem numbers' are going to stay very small:

Fannie, Freddie aftershocks: More bank woes
Government seizure of Fannie and Freddie could cause problems, even failure, for many small banks, even if it helps to stabilize the battered mortgage market.
By Chris Isidore, CNNMoney.com senior writer
September 8, 2008

NEW YORK (CNNMoney.com) -- The takeover of Fannie Mae and Freddie Mac is likely to cause big problems for hundreds of community banks nationwide and could lead to a new round of bank failures.

That's because many smaller banks had a large amount of funds tied up in the preferred shares of Fannie and Freddie, depending on the dividends for reliable income, and the value of those shares to meet the capital levels required by regulators.

Now the dividends have been scrapped and the share values are in question.

"For many banks it was a safe and steady income stream," said Brian Gardner, senior vice president and chief political analyst for Keefe, Bruyette & Woods, an investment bank that specializes in financial firms. "It's cutting off an important source of income for the banks at time when income is not easy to come by."

The government took over the operations of Fannie and Freddie on Sunday and is keeping both the common and preferred shares in place, leaving it to the market to determine their value. But without the dividends, the already battered value of the shares could fall further, leaving banks that hold them without required capital levels.

Even before Sunday's action, the FDIC's watch list of problem banks and thrifts had jumped 30% from the end of March to the end of June, leaving 117 at-risk institutions. A year earlier, the list had just 61. This past Friday, the 11th bank of the year failed.

But the problem may be even worse for the many small community banks, most of which are not even publicly traded and have therefore not had to report financial results publicly.

patzer-"Those who will have the rockiest road, in my opinion, are common stockholders of banks who have shorter term investment horizons. I think very very few depositors will be negatively affected."

Depositers are now being asked to suffer with abysmally low rates on their checking, savings, CD's and T-bills accounts now that the subprime players are getting a government sponsored bailout for their criminal actions. How fair is THAT.

Links that might be useful:

Fannie, Freddie aftershocks: More bank woes
money.cnn.com/2008/09/07/news/companies/fannie_freddie_aftershocks

Fannie, Freddie Deflected Risk Warnings
For Years, Critics Sounded Alarms About Firms' Thin Capital Reserves
www.washingtonpost.com/wp-dyn/content/article/2008/07/13/AR20080713014 62_pf.html

About the "abysmally" low rates of savings accounts, TBills or cds - rates on those instruments are higher in 2008 than they were in 2002-2004.

I have a question for you - why do you post articles without commenting on them?

I have a question for you as well. Why did you ignore the questions I asked you in my earlier post? I'm pretty sure other readers would be interested in hearing a bankers response to those questions that AREN'T being asked by the media, etc. Here they are again:

"Did you know Fannie and Freddie were going to be taken over by the government over the weekend? Does it matter that their shares have plummeted over 90% in value over the past year? Do you have stock with either of these companies and did you buy or sell any shares within the past 6 months? Do you think the Fannie and Freddie CEOs that were pushed out by the government this weekend should be rewarded with fat pay packages, go on to live in massive homes and become high-paid consultants? Or do you think a jail sentence is in order?"

As for posting articles without commenting on them. This is untrue. I've posted plenty of articles that include comments. In fact, I posted a new thread yesterday titled "Why The Fannie-Freddie Bailout Will Fail". It has a full paragraph of my comments before the article. Please feel free to comment!

I knew what I read in the newspapers - suspicions ahead of time that it would happen.

What difference does it make it I did/didn't have stock in these companies? I'm not an insider trader.

No, I don't think the CEOs should get fat golden parachutes. If they go to jail, lots of those in Washington should be going, too. And they should sit in jail with borrowers who fraudulently used the system, lenders who practiced fraudulent loan making, lobbyists and our elected politicians. But that's not up to me to decide - I'm not on a jury.

I don't know about others, but I read a number of newspapers and typically skip posts that are just articles copied and pasted from other sources. That's my comment.