We highlight Bank of America Corp. (BAC), Citigroup, Inc. (C) and Wells Fargo & Co. (WFC).

FDIC’s new insurance coverage extended through 2013

On May 20, 2009, President Obama signed a bill that increases the FDIC’s borrowing authority for its bank deposit insurance to $500 billion until the end of 2010. The legislation also increases the agency’s permanent borrowing authority from the Treasury to $100 billion from $30 billion and extended the agency’s new deposit-insurance limit of $250,000 through 2013.

Earlier in October 2008, the Emergency Economic Stabilization Act had temporarily raised the limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor, which was effective through December 31, 2009.

In all, 34 banks have failed this year, significantly higher from 25 in 2008 and just three in 2007. As the economy continues to worsen (though at a decelerating pace now) and unemployment continues to rise, the banks will continue to fail, sapping the FDIC’s deposit insurance fund. The fund stood at $18.9 billion at the end of 2008 (its lowest level in almost 25 years), compared with $52.4 billion at the end of 2007. FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013.

Yesterday’s federal seizure of Florida thrift BankUnited Financial Corporation is expected to cost the FDIC $4.9 billion, the second-largest hit to its insurance fund since the financial crisis. The costliest was last year’s seizure of IndyMac Bank, on which the FDIC is estimated to have lost $10.7 billion.

While the nation’s 19 biggest banks, including Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC), “passed” the stress tests earlier this month, and are now busy filling the capital holes, the banking system as a whole is still very fragile. With deteriorating commercial real estate, rising credit card losses, and still declining housing prices, we can expect the banks’ woes to worsen, though the massive efforts by the Fed and the Treasury appear to be helping them now.

We advise the bank depositors to ensure that their deposits are under FDIC insurance limits (please keep in mind that the current limit is not permanent, it is only through the end of 2013, as of now) and keep paying attention to the news about their bank.

Read the full analyst report on “WFC”
Zacks Investment Research

Last 5 posts by Zacks Market Commentaries

• CNP & FPL Ink Pipeline Deal - Analyst Blog - November 20th, 2009
• Buffett Borrows for Rail Acquisition - Analyst Blog - November 20th, 2009
• Stone Energy Outdoes Estimates - Analyst Blog - November 20th, 2009
• Smucker's Beats, Raises Guidance - Analyst Blog - November 20th, 2009
• GameStop Meets Expectations - Analyst Blog - November 20th, 2009