While some banks are apparently too big to fail, most are too small to save.
And that spells trouble for the FDIC that is now in the midst of a small bank slow motion crisis that could mean that hundreds of banks will fail in the next few years.
Almost 100 have failed this year already and, as Eric Dash explains in the New York Times , it is possible that the FDIC will need a new infusion of cash to handle the situation before long:
While the parade of failures still represents a mere fraction of America's small banks, it underscores a growing divide between them and large institutions like Goldman Sachs, JPMorgan Chase and U.S. Bancorp, which are slowly growing stronger as the economy improves.Those commercial real estate loans are in default because the lack of business activity has meant that the market is overbuilt and there are few takers for the thousands of office parks, strip malls, and office buildings that were thrown up during the boom earlier this decade. Many stand empty, or nearly empty with no prospect that the situation will turn around anytime soon.
Burdened by worsening commercial real estate loans, many small banks' troubles are just beginning. Many analysts say that the now-toxic loans could sink hundreds of small lenders over the next few years and place a significant drag on the economy.
Already, the bank failures are placing enormous strain on the F.D.I.C. and its fund, which keeps depositors whole. Flush with more than $50 billion only two years ago, the fund recently fell into the red.
The prospect of more failures has led the F.D.I.C. to seek new ways to replenish the fund with higher and earlier payments by healthy banks, even after setting aside reserves for future losses.
The initial wave of failures has also unsettled some communities, even though most of the troubled institutions have been bought by other banks rather than shuttered. While deposits are safe thanks to federal insurance, the new buyers often do not have the same ties to local businesses as the former owners.
As losses mount, the strain the FDIC is under will increase. They are able to make up the shortfall for the moment but that could change if things get much worse. At that point, taxpayers will have to come to the rescue of another government agency - this one, we can't afford not to.