FDIC Friday – one bank and one S&L – both very small. I take this as not a sign that the problem is over, but the FDIC is stretched too thin (money and staff) to get any more banks closed.
The govt needs to find a way to get the good banks to initiate takeovers without FDIC involvement or this problem will never get solved.
3 more banks now closed as of 10pm est. 120 total for 2009 thus far.
Reading the list, the FDIC now seems to be shifting the problem into the future by entering into “loss sharing” arrangements. As I think I understand it, the idea is the bank “taking over” gets a loan portfolio (or other assets) and a promise from the FDIC that if in the future some of those loans “go bad”, the FDIC will make up most of the loss (typically 80%)… if the loans don’t fail, then the buying bank is that much ahead (the FDIC doesn’t share in a gain)… the “starting point” of determining the loss is based on a guess of the future default rates of the portfolio. This keeps the risk away from the buying bank, but doesn’t require the FDIC to sweeten the deal by giving the buying bank the cash today.
Don’t solve today what you can put off until tomorrow…. the market has to come back eventually, right?