Market turmoil confirms FDIC’s tough position

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Looking at today’s selling wave, a number of bank shares are down over 10% including Washington Mutual (WM), National City (NCC), Wachovia (WB), Zion (ZION). Many other shares are trading well into negative territory with share prices below $10 including KeyCorp (KEY), Fifth Third (FITB), Dearborn (DEAR), and Huntington Bancshares (HBAN). These are very large banks looking at considerable losses in equity value after a supposed backstop by the Treasury was supposed to calm the markets. Instead selling pressure has accelerated for the regionals and those heavily exposed to Alt-A mortgages like WaMu.

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  • Are any of these companies on the FDIC watch list?
  • How will depositors act?
  • What will Congress due to prevent a 1930’s style wave of bank runs?

The FDIC simply does not have enough capital to be an adequate backstop for the aforementioned companies. This is turning into the a re-run of last summer. However, this time the economy and financial institutions both are on shakier ground. We need a market-stabilizing solution fast.

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