The FDIC is down 40% this year to $10.4 billion in its reserve fund, while the number of problem banks (those that get failing grades in its longstanding rating system) has grown to almost $300 billion.

The U.S. has taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama, amid the worst financial crisis since the Great Depression. The surge forced regulators to charge banks an emergency fee to raise $5.6 billion for its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. The total was the lowest since the savings-and-loan crisis in 1993....

An $11.6 billion increase in loss provisions for bank failures caused the decline in the reserve fund, the FDIC said. If the fund is drained, the FDIC has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.

That second paragraph is important -- they don't just have $10.4 billion, but also a reserve fund, which the FDIC places at $32 billion. And FDIC has a line of credit with the Treasury for $100 billion on which it can draw, though FDIC Chair Sheila Bair says they do not expect to draw on the line.

Worth noting: The Midsummer Review we discussed Tuesday included the return of $250 billion from the financial market backstop. Perhaps they've moved money away prematurely.

In the meantime, Richmond Federal Reserve president Jeffrey Lacker is sounding hawkish again.

The Federal Reserve may not need to buy the full $1.25 trillion in mortgage-backed securities the central bank has authorized by year-end as the economy improves, ...

�I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide,� Lacker said today in a speech in Danville, Virginia.

Lacker has said the central bank should avoid favoring specific credit markets such as mortgages and consumer loans and instead boost the money supply with more �neutral� purchases of Treasuries. He cast the lone dissenting vote in January against the Federal Open Market Committee�s commitment to continue buying agency debt and mortgage-backed securities. In 2006 he dissented four times in favor of higher interest rates.

As the Fed continues to debate an exit strategy, more Fed presidents and governors will begin to look at this view. The fight is on for how soon exiting begins; as they move, look for more banks to fail.

Labels: banking, economics