Now that the U.S. government is insolvent it is important for bank depositors to consider that the FDIC’s solvency is no longer effectively guaranteed by the U.S. Treasury. In the event of a major bank failure — hardly a far-fetched notion at this point — the FDIC would not necessarily immediately have the funds to reimburse depositors. This affects not just depositors at the major bank itself, but also at any other bank that fails at the same time or subsequently. Until Congress acts to restore solvency to the Treasury, you must not rely on any one bank for cash to operate your daily life (or business). Have enough food and cash out of the bank to survive until your next paycheck, or hold credit cards that you are certain are from separate, unaffiliated banks.
The FDIC has mostly underestimated the magnitude of the current series of bank failures, failing to predict the number of failures that have occurred and usually underestimating its costs in liquidating bank failures. More than a year ago I became concerned that the FDIC’s estimates of its costs in individual bank failures had lost most of their relevance. That is, the cost estimates published when a bank failed often seemed to be arbitrary numbers that had no apparent relation to the problems with the bank’s assets. This concern is perhaps validated by the FDIC’s revised estimates of its costs for individual banks. Most are upward revisions. We have seen estimates revised down by 10 percent, but others revised up by as much as a third. It takes at least five years after a bank liquidation before a relatively reliable estimate can be made, so we will not know the true magnitude of the costs for some time to come.
At closing time tonight, Georgia closed two more of its banks. The two failed banks were Atlantic Southern Bank, with 16 branches, based in Macon, and First Georgia Banking Company, with 10 branches, based in Franklin. Each bank had just over $700 million at last count. Deposits from both failed banks have been transferred to South Carolina-based Certus Bank, which is also purchasing the assets.
On the West Coast, Washington state regulators closed Summit Bank, based in Burlington in the northwest corner of the state, with $132 million in deposits. Columbia State Bank is taking over the deposits, paying a 0.75 percent premium, and purchasing the assets.