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Is FDIC Running Out of $?

Now that the Federal Deposit Insurance Corp. (FDIC) has released its latest report on the nation’s banking system, a popular topic of discussion is exactly how much money the FDIC has left to rescue more failed banks.

FDIC Chairman Sheila Bair said on Friday that the FDIC has plenty of funds to cover future rescues. But the tide is definitely not in the FDIC’s favor, as some forecasters expect hundreds of U.S. banks to fail in the months ahead as they claw their way out of the recession.

By the end of the first half of 2009, the FDIC noted 416 banks on its “problem list”, which is about 5% of all U.S. commercial banks and up from 117 a year ago. Those problem banks had about $300 billion in assets. State and federal regulators have closed 81 banks so far this year.

While the FDIC’s insurance fund totaled $50 billion at the end of last year, it has now dropped to just $10.4 billion, the lowest level since 1993. With more failures in the near future, the FDIC likely will have to replenish its account by imposing a new fee on banks.

For its part, commercial real estate is playing a dramatic role in the health of banks. Rating agency Fitch has singled out CRE loans as a primary cause for worry when it comes to the health of financial institutions.

“The performance metrics of commercial real estate, an area with a significant risk exposure for the majority of Fitch's U.S. bank universe, continues to deteriorate at an unprecedented pace,” noted the firm in a statement.

“The same factors that are placing pressure on CMBS transactions are increasing pressure on the performance of bank and thrift-held CRE portfolios,” said Thomas Abruzzo, Managing Director and co-head of Fitch's North America Financial Institutions group.

“Large banking companies have seen levels of early-stage delinquencies, more severe delinquencies and non-accrual loans, as well as charge-offs increase markedly across their CRE and construction and development portfolios," said Abruzzo. "While the 10%+ of construction and development loans in non-accrual is greatly attributed to residential construction activity, the 5% of the CRE book in non-accrual status evidences more widespread problems.”

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