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February 24, 2010 – Banking System Remains Stressed Out Highlights from the FDIC Quarterly Banking Profile! Case Shiller Home Price Index Stable for Now, but Downside Risks are Evident. Consumer Confidence Takes a Plunge, which turns the Dow Industrial Average lower. The FDIC List of Problem Banks jumped to 702 from 552, up 27% in the fourth quarter. With 8,012 FDIC insured financial institutions, 8.8% are on the problem list.

Remember one of my ten predictions for 2010 was that the List of Problem Banks would exceed 700. I was wrong, it happened in 2009. The FDIC Deposit Insurance Fund ended 2009 at -$20.9 billion with a decline of $12.7 billion in the fourth quarter. I have not yet found the details of that $45 billion in DIF assessments for 2010 through 2012. I sent this email to the FDIC Tuesday afternoon: I watched the FDIC QBP Press Briefing this morning, and heard that the Deposit Insurance Fund was at a $20.9 billion deficit. I thought that the FDIC collected $45 billion from members at the end of 2009 for prepaid funds for 2010 through 2012. What happened to that inflow to the DIF?

Insured deposits increased 13.5% in 2009, or by $641.4 billion due to the $250,000 per account FDIC guarantee, which reverts back to $100,000 at the end of 2013. Despite this increase Total Assets declined $734 billion to $13.1 trillion or 5.3% for 2009. GDP increased 5.7% in the 4th quarter, while total assets declined 1.0% in the quarter. This is my reason to doubt the sustainability of this GDP blip, as the Quarterly Banking Profile is the balance sheet for the US economy. Since the end of 2007 the FDIC closed 201 banks with 8012 FDIC insured financial institutions still operating at the end of 2009. Bank failures totaled 1,617 between 1980 and 1994, and at the end of 1992 there were 13,852 FDIC insured financial institutions. Further consolidation is likely and necessary. According the Standard & Poors Case Shiller 20-City Home Price Index the price of a home increased for the 7th straight month in December. The increase was just 0.3% raising the index to 145.87. For the fourth quarter of 2009 prices declined 2.5% from the fourth quarter of 2008.

The 20-City Index declined 3.1% in December year over year. The Standards & Poor press release indicated that the rate of improvement seen during the summer has not been sustained. This index began the 21st Century at 100, so home prices are up 45.9% for the decade. From the mid-2006 high to the May 2009 home prices are down 30% back to the levels of mid-2003. Put into prospective, home prices are up just 3% since bottoming in May and are down 30% from the mid-2006 peak. In fact 15 of 20 metro areas showed a decline in home prices in December.

The January reading for the Conference Board reading of Consumer Confidence tumbled to 46 in February from 56.5, as consumers slide down the Wall of Worry well below the 90 to 120 neutral zones for this series. The Present Situation Index fell to 19.2 from 25.2, the lowest reading in 27 years. The Dow is below my annual pivot at 10,379 and the 50-day simple moving average at 10,377. The daily chart shows rising MOJO, but that changes with a close today below the 21-day simple moving average at 10,184. Weekly support is 10,105.

Chart Courtesy of Thomson / Reuters

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