Could this be an early warning sign that it is no longer prudent to merely allocate one's portfolio heavily towards cash or cash equivalents? Perhaps one should also consider keeping a moderate amount of cash (literally) in one's wallet???
online.wsj.com
Bank Failures Bust FDIC Budget As 95% of Assets Remain Unsold
By REBECCA CHRISTIE
DOW JONES NEWSWIRES
WASHINGTON -- This year's spate of bank failures has pushed the Federal Deposit Insurance Corp. over budget, although the costs aren't expected to threaten insurance-fund reserve ratios, the FDIC said Friday.
FDIC staff said they had planned for two bank failures in the first quarter of this year, but instead there were six. Two of those, NextBank and Hamilton Bank, entail complicated cleanup operations.
In the long run, the entire cost of those operations will be met by bank receiverships, so it won't affect the ratio of bank deposits to reserves in the insurance fund, the FDIC said. In the meantime, the expenses will appear on the corporation's balance sheet.
At the end of the first quarter, the cost of outside services was $4.3 million more than anticipated, or about 18% over budget, the FDIC said at an open board meeting. Overall, the FDIC was 5% under budget at the end of March, but as the year has progressed it has gone beyond its forecasts.
"That's a timing issue and we're really over our budget," said FDIC Chairman Don Powell.
The FDIC probably will have to take up the budget in early August to approve the extra funding, staff said.
In addition to the higher-than-expected number of bank failures, the FDIC hasn't sold off the assets of failed banks as quickly as it expected.
The FDIC still has 95% of the $2 billion in assets of the banks that have failed this year, said FDIC spokesman David Barr. Forecasts called for 50% of the bank assets to pass on to the closed banks' acquirers, he said.
The FDIC has had to handle the international loan operations and portfolio of Hamilton Bank, which was shut down in January. The bank, which was based in Miami, had $1.3 billion in assets and $1.2 billion in deposits when it closed.
The FDIC also had to take on the credit-card accounts of NextBank, a Phoenix-based bank that marketed credit cards on the Internet. Regulators shut it down in February.
Earlier this week, the FDIC closed 800,000 credit-card accounts. Mr. Barr said it sold another 200,000 NextBank cards to another bank before closing the remainder of the portfolio.
Write to Rebecca Christie rebecca.christie@dowjones.com
Updated July 12, 2002 6:04 p.m. EDT
KJC |
