- regulators involved
- prohibited from getting brokered deposits
- can't sell stock (no buyers)
- asset sales would deplete capital (tacit admission of mis-valuation)
- ===> must stop making loans
$5.6 million - Douglass National
ANB is almost the entire amount but was not shut down until May. The FDIC was already anticipating a lot more at the end of March. It will be fascinating to see what kind of provisions they made at the end of June. We should have that report in approximately 2 weeks. The banks that have failed so far have cost the FDIC about 10% of deposits to make the depositors whole. This suggests that the regulators were planning on banks with another $3 billion in deposits going bad as of 4 months ago but IndyMac alone is much larger than that.
So what kind of impact should we expect if the FDIC has to liquidate a large part of their portfolio to make good on their guarantees? Personally, we're expecting a bear steepening of the yield curve but have a look at the composition for yourself:
There is a big slug of bonds maturing in 2009 so if FDIC is forced to liquidate, the pressure should be strongest on the 2-year and shorter Treasury market. Given the amount of cash, it would take a significant failure to force them to liquidate much before the maturity dates but we want to start thinking about the possibility and the implications of such an event.