For starters, Guaranty Financial of Texas went belly up late Friday and secured a spot in the history books. With $13 billion in “assets,” the bank is the third largest to fail this year and tied for the 11th biggest bank failure in U.S. history.

Even more interestingly, the FDIC brokered Guaranty’s assets to Banco Bilbao Vizcaya Argentaria, a bank from northern Spain. We’re surprised on two fronts here: 1) That a bank from Spain — strapped with double-digit unemployment and a wretched housing bust — wants to bring their euros to I.O.U.S.A. 2) That BBVA already has a huge presence in Texas. With this acquisition, they will be the fourth largest banking chain in the Lone Star State. That could be an interesting trend to watch.

Three other banks failed along side Guaranty: CapitalSouth, First Coweta and ebank. That brings the yearly total to 81.

This should put the FDIC’s deposit insurance fund on its last legs. At the beginning of 2008, the FDIC’s bank failure war chest had over $52 billion. At the end of the March 2009, the last time the FDIC has given us a look into the DIF, they had $13 billion left. 60 banks have failed since, including Guaranty and Colonial, which by themselves took out half of that remaining $13 billion. Only the FDIC can say with accuracy if there is any money left, but this chart gives you a pretty good idea of how the trend is shaping up:

The DIF does have a source of income — it taxes member banks a significant “insurance fee.” But we have to think that the DIF is still in bad shape, perhaps even empty… and that the FDIC will soon be hitting up someone (Tim Geithner, Joe Taxpayer and/or U.S. banks) to refill their coffer.

The FDIC will provide their second-quarter report tomorrow, which among other things will include a look into the DIF and their infamous bank “problem list”… could get ugly. We’ll keep you up to speed.

“Recent bank failures remind us of the problem loans festering on small and regional bank balance sheets,” writes Dan Amoss, “and that many of them are marking loans at fantasy levels. The secondary market value for some of the worst loans, like construction loans, is 20 or 30 cents on the dollar.

“There’s a backlog of at least a few hundred insolvent banks that need to be shut down and sold into stronger hands. Bank stock bulls are ignoring the credit losses yet to be recognized, so there are lots of shorting opportunities in the sector. Many banks will not be able to “earn their way out” of their credit losses.

“The problem is, there aren’t many strong buyers with lots of capital out there. Those that are, like private equity groups, are buying only after the FDIC agrees to eat most of the credit losses, and the buyer is gifted with the remaining shell — the profit-making engine of spread lending.

“It’s understandable that the FDIC doesn’t want much publicity about the Deposit Insurance Fund; it wants to maintain the public’s confidence that it can ‘insure’ all deposits with just a few basis points of capital reserves and skimpy premium income. The fund is clearly not adequate to cover the bank failures still in the pipeline, so we’ll see another ‘special assessment’ imposed on all other banks, which will ultimately be passed on to depositors via lower interest rates.”

Critical banking analysis has been one of the hallmarks of Dan’s Strategic Short Report. His brand of scrutiny gave readers 162% gains betting against Allied Capital (NYSE:ALD), 220% on PNC Financial and the whopping 462% winner shorting Lehman Brothers. Today is the last day we are offering his latest financial short play for just $1. Capture this truly rare opportunity by clicking here… midnight tonight, the deal’s off.

Source: The Banking Crisis Cometh

Here’s Karl Denniger at the Market Ticker on why you should be concerned:

Let’s put this in plain language: The discount window is open for any bank that has good collateral at less than 1/10th of that interest rate.

Therefore there is absolutely no reason for any institution to go into the Fed Funds market for overnight money at 7% unless they have no good collateral to post against it and thus cannot go to the window.

So which bank was it?  That remains unknown.

But there’s absolutely no reason a well capitalized bank would borrow at 7% when they could do it at 1/10 of the price.  And the last time this fishy late night borrowing went down was right before the massive wave of bank failures of Lehman Brothers, Washington Mutual, and Wachovia.

This isn’t stopping banks from paying out huge bonuses (again). The banking hubris that got us into this mess has returned in full force.

According to the Wall Street Journal, Goldman Sachs “is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm’s $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007… Morgan Stanley, the only other huge U.S. securities firm left as an independent company, will likely pay out $11 billion to $14 billion in compensation and benefits this year, analysts predict.”

The return of the mega bonus just goes to show how hard it is to break Wall Street’s bad habits.  We suspect the financial geniuses are busily crafting the next bubble.  Any ideas what it might be?

The dollar and yen fell on Friday as global stocks rebounded and reports that banking giant Citigroup (C) was mulling a merger with another firm helped quell market anxiety.

The more relaxed mood prompted those who had lately sold risky assets in favor of the U.S. and Japanese currencies to reverse course and move back gingerly into stocks, commodities and higher-yielding currencies such as the euro and sterling.

“It feels like we’ve reached a point where total fear is receding a little. There’s an inkling of hope that we may be near a bottom, which is reflected in equities and high-yielding currencies today,” said Boris Schlossberg, senior currency strategist at GFT Forex in New York.

Geoffrey Yu, currency strategist at UBS in London, said “the market is trying to be optimistic but not get carried away.”

Early in New York, the euro was up 0.9 percent at $1.2575 though it was off a $1.2640 session high. It rose 1.8 percent to 119.22 yen . Sterling added 1.6 percent to $1.4964 . The dollar rose 1 percent to 94.90 yen .

Asian and European shares also rose and Wall Street opened on a firm footing, lifted partly by news that Citigroup , which lost half its market value this week, was considering selling parts of its business or merging with another company.

Citigroup’s board of directors is scheduled to meet on Friday to discuss options, the Wall Street Journal reported, citing people familiar with the situation.

Worries about the future of Citigroup on Thursday had pushed the bank’s shares to their lowest in more than a decade, helping drive the S&P 500 index to its weakest point since 1997.

But while the reports about Citi on Friday eased some concern about another major bank failure, some said it would not be enough to improve lending conditions and pull markets out of their malaise.

Analysts at Brown Brothers Harriman said both the euro and sterling are overbought and are ripe for a reversal before the day is through, as neither has been able to move above key resistance levels of $1.2660 and $1.51, respectively.

Schlossberg said the test will be whether investors feel confident enough to remain long U.S. equities and higher risk currencies such as the euro and sterling through the weekend.

“If you see people buying equities into the close today, that will be euro and sterling positive, but if stocks sell off in late trade, currencies will react and the dollar and yen should benefit,” he said.

Earlier, euro zone data showed the manufacturing and service sectors contracting much more quickly and deeply than expected in November, rekindling worries about global growth.

The weaker-than-expected PMI survey “likely will feed the recession fears gripping markets and pose more downside for risk assets,” JP Morgan currency strategists said in a note.

The yen was mostly a victim of renewed risk appetite on Friday, though it also buckled when Finance Minster Shoichi Nakagawa said authorities must be ready to deal with market price swings. Analysts said investors saw that as a warning that Japan could still step in to slow yen gains.

Last night they were closed by the government and banking assets were sold to JPMorgan Chase & Co (NYSE:JPM) for $1.9 billion. Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours trading.

Washington Mutual has a major presence in California and Florida, two of the states hardest hit by the housing crisis. It also has a big presence in the New York City area.

The thrift amassed $6.3 billion of losses in the nine months ended June 30. It had also projected $19 billion of mortgage losses through 2011, but analysts said credit losses could reach as high as $30 billion.

“It is surprising that it has hung on for as long as it has,” said Nancy Bush, an analyst at NAB Research LLC.

Read on: http://biz.yahoo.com/rb/080925/business_us_washingtonmutual_jpmorganbiz.html?.v=3

Then you discover that every check you wrote in the past week has bounced. And, you receive a call saying that your retirement assets are frozen. The kicker is that you had over US$1 million dollars in your account.

You try to call your bank for answers, but they won’t help you.

I know this story sounds like I’ve pulled it right out of the Great Depression. I’ve got news for you…this story is very real. It all happened last month to a US$2.1 BILLION bank in a little community in Bentonville, Arkansas.

How a Bank “Suddenly” Goes Under
in the 21st Century

It was a very organized attack. On May 9th, the accountants snuck in the back door that Friday night after 5:00pm once the bank’s doors had closed. Little did anyone know the doors were closing for good…

And under the cover of darkness, over a hundred FDIC accountants began to systematically dismantle ANB financial headquarters – the venerable US$2.1 Billion institution that had been in business just hours before.

In short, FDIC officials were there to pick up the pieces because ANB was about to become the third bank to FAIL here in the United States in just the last six months. The fourth-largest bank in Arkansas was about to become yet another sub-prime casualty that choked on their own bad loans and investments.

The unlucky customers of ANB received nothing more than a letter that stated nothing of the bank failure, but rather introduced the “new” bank – Pulaski Bank.

Yet, I am sure most customers figured out their bank had gone south long before the formal letter arrived. As of 5:01 PM on May 9th, every single account at ANB was frozen. Money market accounts to trust assets to basic checking accounts…

What FDIC Insurance Really Means
If Your Bank Goes Under

When you hear your account is “FDIC insured,” do you really know what it means? In short, it means the Federal Deposit Insurance Corp. will reimburse you for up to US$100,000 for any one account you hold in your name.

If you have a joint account, then both account holders are insured up to US$100,000. You also can secure US$100,000 for each beneficiary in certain accounts (payable on death). (For full FDIC rules see FDIC’s Guide to Deposit Insurance Coverage.)

Does this insurance help? Absolutely. But when you have an account worth more than US$100,000…well, that’s how you can lose money if your bank goes under.

Also, these days most respectable businesses make well over US$100,000 a year, so that limit is fairly easy to reach. And when accountants poured over ANB’s books, they discovered 647 accounts that exceeded that limit. That equaled US$39.2 million in uninsured funds.

FDIC representatives, who I believe must hate their jobs on a regular basis, had to call these unfortunate account holders and tell them what they lost. One ANB client lost US$1.4 million. Overnight. With no warning. And as for the rest…well historically, uninsured deposits recoup 65 cents on the dollar. Plus, it can take years to get your money back.

A shocked ANB client said to me: “It’s like [your money] doesn’t belong to you anymore…it’s theirs.”