FDIC spokesman David Barr talked with Bankrate recently about the increasing number of bank failures and the effect on the agency. In an effort to help readers better understand how the agency handles bank failures, we are publishing part of the interview. It has been edited for clarity. And for an updated list of bank failures this year, see Here is an updated "2009 list of failed banks." Find more FDIC news to use in this Special section.
Questions for David Barr:Some industry analysts are predicting more than 200 bank failures in 2009. Does that seem like a reasonable number?
Predicting failures from the outside is a difficult thing to do. Last year we had 25 failures. To go back to when we had more than 25 failures in a given year you'd have to go to 1993, when we had 50. In 1992, we had 181.
An interesting thing about 1992, and again, predicting bank failures from the outside, if you go back to September or so of 1992 and you did a search for "the December surprise," you'd find a report that outlined that the government was purposely not closing banks until after the November election. And that once the election occurred, you'd see this avalanche of bank failures. They never materialized.
It's difficult to make predictions. You get people who use analytical models without actually being on site at a bank trying to figure out what's going on and trying to make a prediction is difficult at best.
To date, the bank failures that have occurred this year have cost the Deposit Insurance Fund approximately $1,770,000,000. In all but one case, there was an acquiring bank assuming most of the deposits and a good portion of the assets. Why is it that costs to the DIF seem so high?
It could be that the assets that are left have no real value. Even if they take all the good assets, the bad assets could be so bad that there's no value. You also have administrative expenses for the receivership, and there could be other costs, such as secured borrowings that have to be paid off right away. There are a lot of things beyond the press release that go into calculating the cost to the insurance fund.
In almost all cases it seems that the acquirer does not take the brokered deposits. Does that mean that customers who have brokered deposits, such as CDs, with failed banks have to wait a considerable amount of time to get their money?
The FDIC has to wait to obtain documentation from the brokers. Brokers have become much better at turning around their documents. What took a long time in the beginning, say a year ago, when we started having an increase in failures, was that brokers weren't getting their documents to us in time. It would sometimes take two to three months to get the necessary documentation from the brokers.