Reporter's Notebook

Paul Leonard can be reached at pleonard@vbjusa.com

Playing phone tag with the FDIC

We’ve all been there.

When she calls, I’m either on deadline, out the door or on another call. I know it’s her because my caller ID reads simply, FDIC.

That’s right, folks. I have a call out to the Federal Deposit Insurance Corp., that regulatory behemoth which has seized the assets of 107 failed financial institutions from coast to coast so far this year, including most recently, Cowlitz Bank.

And I’m still waiting to connect.

I first found the FDIC’s press contact in bolded type at the top of a release of the kind usually sent to journalists after a bank failure, with details of what has become a familiar, yet still intricate transaction between the public and private sector.

The top, as is the case for most news articles, contains the meat of the story. In the case of Cowlitz Bank that involved the following (and I paraphrase): We (the government) are closing one bank and selling its most valuable assets to the highest bidder.

The purpose of this transaction, the statement later reads, is to protect the depositor, of whom the press release is emphatic should not notice anything awry in the slightest.

People will still be able to cash their checks, use the same ATMs, visit the same newly-branded branch come Monday and talk to the same teller, the FDIC insists.

Apart for the trifling matter of signage and perhaps stationary, it’s almost like the bank never really failed, really.

It’s only at the very bottom of the release that there seems to be something which belies the suggestion that this latest bank failure is simply business-as-normal.

It reads: “The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $68.9 million.”

So I did some math. Assuming the FDIC took the exact same hit on each of the 107 financial institutions (many of which were likely in far worse shape than Cowlitz Bancorp) to fail in 2010, the potential cost to taxpayers stands at approximately $7.4 billion. That’s not counting the approximately $9.6 billion hit the FDIC took in 2009, using the same formula.

Here’s another bit of information not on last Friday’s FDIC release: as of June 2010, the Deposit Insurance Fund, or simply, “The Fund,” is in negative territory.

As in, broke.

So with all this in mind, here’s my first question for the FDIC’s flak (assuming I ever time my coffee breaks to be at my desk when she calls):

“If the FDIC fails, who will be sending out the press release?”