Bank Lending Last Year Dropped at the Biggest Clip Since 1942

The FDIC is even more broke than it was three months ago. The fund the FDIC uses to “insure” your bank account went $20.9 billion in the red during the fourth quarter of 2009. That’s more than twice the deficit reported when the fund first entered negative territory in the previous quarter.

Incredibly, the FDIC is still trying to reassure us that all is well because it’s collecting three years of advance payments on the annual assessments paid by its member banks. The fees total $45 billion – barely twice the amount of the current deficit. Yeah, we feel better.

On top of that, the FDIC’s list of “problem banks” grew during the fourth quarter from 552 to 702. That’s the highest number since 1993 (when, we presume, more independently owned banks were around, so it’s worse than it sounds).

Hmmm, let’s see. The number grew 27% in just one quarter. At this pace, every bank in the country will be on the problem list by the fourth quarter of 2012.

Another tidbit from the FDIC’s report: Bank lending last year dropped at the biggest clip since 1942.

Of course, in that year, the entire economy was shifting to a war footing. So it’s safe to say what we’re seeing now is another unprecedented postwar occurrence. The report confirms data released by the St. Louis Fed earlier this week that show commercial and industrial lending have fallen off a cliff.

As long as banks can continue to borrow from the Fed at 0.25% and park it in 10-year Treasuries for nearly 3.7% (and leverage it up, of course), we don’t see this changing much.

About Addison Wiggin 88 Articles

Affiliation: Agora Financial

Addison Wiggin is the editorial director of The Daily Reckoning, and executive publisher of Agora Financial, a multi-million dollar financial research firm and publishing group based in Baltimore, Maryland. His second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated.

He is also the executive producer of and a writer of I.O.U.S.A. a feature length documentary film nominated for the Grand Jury prize at the 2008 Sundance Film Festival. The film is inspired by the international bestsellers Financial Reckoning Day and Empire of Debt, which he coauthored with Bill Bonner.

Visit: The Daily Reckoning

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