There were two more bank failures last Friday - Security Savings Bank and Heritage Community Bank. These bank closings are the 15th and 16th bank failures for the year. As has been the case with other bank failures this year, the FDIC has faciliated the transfer of deposits to another bank. That means that all regular deposits, even those above FDIC limits are being made whole. The only exception are brokered deposits. These will be held by the FDIC and its probably that brokered deposits over FDIC limits will be lost. This also seems to be an emerging pattern. If you have money brokered deposits you'd be wise to make sure the amounts are under FDIC limits for each institution in which the funds are invested.

Details of each bank failure are:

Security Savings Bank, Henderson, NV

• Assets: $283.3 million
• Deposits: $175.2 million
• Purchasing Bank: Bank of Nevada, Las Vegas
• Cost to FDIC: $59.1 million
• Customer Access: Over the weekend, depositors of Security Savings Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

Heritage Community Bank, Glenwood, IL

• Assets: $232 million
• Deposits: $218.6 million
• Purchasing Bank: MB Financial Bank, N.A., Chicago, Illinois
• Cost to FDIC: $41.6 million
• Customer Access: Over the weekend, depositors of Heritage Community Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As we've seen with ever bank closing this year, the closing happens on a Friday, and customers retain access to funds over the weekend via ATMs and checks. The following the Monday the transitiont to the new owners have been made and funds can be withdrawn normally. FDIC insurance continues to operate smoothly.

The FDIC is recommending a one time emergency assessment on member banks to help replenish the rapidly depleting FDIC insurance fund.

Bloomberg reports that:

"FDIC staff members at a board meeting today in Washington will recommend charging banks an “emergency special assessment” in response to an estimate that bank failures could cost the fund $65 billion through 2013, according to a memo outlining the proposal. The added fees are projected to generate $27 billion this year, compared with the $3 billion raised in 2008, the FDIC said"

The FDIC insurance fund has fallen from $34.6 billion in the third quarter of 2008 to $18.9 billion in the last three months. That's not going to cover all of the anticipated bank failures.

The emergency fee would be $.20 per $100 in insured deposits. The FDIC is also considering changing the amount it assesses on a regular basis from $.07 per $100 in deposits to $.12 to $.14 per $100 deposits.

Banks are charged for FDIC insurance on a quarterly basis and their rate depends on their risk weighing, which takes into effect their capital, their funding sources, and their assets. The size of the bank and the score they receive on this risk assessment determine how much is required to be paid in.

To put the fee into perspective, a medium sized bank with $1 billion in deposits would pay an additional $2,000,000 per year because of this assessment. That's not an insignificant amount and is one more demonstration of why the financial system is in for a rough time. The losses we are experiencing today are going to have an impact on bank profitability well into the future.

Whie this is bad news for bank shareholders, it is a positive to depositors and the general, who can rest easy knowing the insurance fund that backs their account will remain solvent without government support - for now.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported a net loss of $26.2 billion in the fourth quarter of 2008, a decline of $27.8 billion from the $575 million that the industry earned in the fourth quarter of 2007 and the first quarterly loss since 1990. Rising loan-loss provisions, losses from trading activities and goodwill write-downs all contributed to the quarterly net loss as banks continue to repair their balance sheets in order to return to profitability in future periods.

More than two-thirds of all insured institutions were profitable in the fourth quarter, but their earnings were outweighed by large losses at a number of big banks. Total deposits increased by $307.9 billion (3.5 percent), the largest percentage increase in 10 years, with deposits in domestic offices registering a $274.1 billion (3.8 percent) increase. And at year-end, nearly 98 percent of all insured institutions, representing almost 99 percent of industry assets, met or exceeded the highest regulatory capital standards.

"Public confidence in the banking system and deposit insurance is demonstrated by the increase in domestic deposits during the fourth quarter," FDIC Chairman Sheila Bair said. "Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times."

For all of 2008, insured institutions earned $16.1 billion, a decline of 83.9 percent from 2007 and the lowest annual total since 1990. Twelve FDIC-insured institutions failed during the fourth quarter and one banking organization received assistance. During the year, a total of 25 insured institutions failed. The FDIC's "Problem List" grew during the quarter from 171 to 252 institutions, the largest number since the middle of 1995. Total assets of problem institutions increased from $115.6 billion to $159 billion.

In its latest release, the FDIC cited deteriorating asset quality as the primary reason for the drop in industry profits. Loan-loss provisions totaled $69.3 billion in the fourth quarter, a 115.7 percent increase from the same quarter in 2007. In addition, the industry reported $15.8 billion in expenses for write-downs of goodwill (which do not affect regulatory capital levels), $9.2 billion in trading losses and $8.1 billion in realized losses on securities and other assets.

The FDIC provided data on industry use of the Temporary Liquidity Guarantee Program (TLGP), which was established in mid-October to address credit market disruptions and improve access to liquidity for insured financial institutions and their holding companies. The TLGP, which is entirely funded by industry fees that totaled $3.4 billion as of year-end, has two components. One provides a 100 percent guarantee of all deposits in noninterest-bearing transaction accounts, such as business payroll accounts, at participating institutions. The other provides a guarantee to newly issued senior unsecured debt at participating institutions. At the end of December, more than half a million deposit accounts received over $680 billion in additional FDIC coverage through the transaction account guarantee, and $224 billion in FDIC-guaranteed debt was outstanding.

"The debt guarantee program has been effective in reducing borrowing spreads and improving access to short- and intermediate-term funding for banking organizations," Chairman Bair noted. "In recent weeks, banks have been able to issue debt without guarantees and other corporate borrowers have issued debt more frequently and in larger amounts. These are positive signs."

Financial results for the fourth quarter and full year are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Among the major findings:

Provisions for loan losses continued to weigh on earnings. Rising levels of charge-offs and noncurrent loans have required insured institutions to step up their efforts to increase their reserves for loan losses. The $69.3 billion in provisions that the industry added to reserves in the fourth quarter represented over half (50.2 percent) of its net operating revenue (net interest income plus total noninterest income), the highest proportion in any quarter in more than 21 years.

The rising trend in troubled loans persisted in the fourth quarter. Insured institutions charged off $37.9 billion of troubled loans, more than twice the $16.3 billion that was charged-off in the fourth quarter of 2007. The annualized net charge-off rate of 1.91 percent equaled the previous quarterly high set in the fourth quarter of 1989. The amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) increased by $44.1 billion (23.7 percent) during the fourth quarter. At the end of 2008, a total of 2.93 percent of all loans and leases were noncurrent, the highest level for the industry since the end of 1992.

The FDIC's Deposit Insurance Fund reserve ratio fell. A higher level of losses for actual and anticipated failures caused the insurance fund balance to decline during the fourth quarter by $16 billion, to $19 billion (unaudited) at December 31. In addition to having $19 billion available in the fund, $22 billion has been set aside for estimated losses on failures anticipated in 2009. The fund reserve ratio declined from 0.76 percent at September 30 to 0.40 percent at year end. The FDIC Board will meet tomorrow to set deposit insurance assessment rates beginning in the second quarter of 2009 and to consider adopting enhancements to the risk-based premium system.