Regulators shut down 5 more banks; 89 failures this year

The sale of most of Austin-based Guaranty's operations to the U.S. division of Banco Bilbao Vizcaya Argentaria, Spain's No. 2 bank, marked the first time a foreign bank has bought a failed American bank during the current financial crisis.

The insurance fund has been so depleted by the epidemic of collapsing financial institutions that some analysts have warned it could sink into the red by the end of this year. The fund fell 20% to $10.4 billion at the end of June, the FDIC reported Thursday.

That's its lowest point since 1992, at the height of the S&L crisis. The agency estimates bank failures will cost the fund around $70 billion through 2013.

U.S. banks overall lost $3.7 billion in the second quarter, compared with a profit of $7.6 billion in the January-March quarter, according to the FDIC. Surging levels of soured loans at banks dragged down profits in the April-June period.

FDIC Chairman Sheila Bair has said there were no immediate plans to borrow money from the government to replenish the insurance fund by tapping the agency's $500 billion credit line with the Treasury. The FDIC may, however, impose an additional fee on U.S. banks this year to bolster the fund, atop the estimated $5.6 billion from a new emergency premium that took effect June 30.

The FDIC is fully backed by the government, which means depositors' money is guaranteed up to $250,000 per account. And the agency still has billions in loss reserves — including $21.6 billion in cash — apart from the insurance fund.

Last week, the FDIC opened the door wider for private investors to buy failed financial institutions. The FDIC's board voted to reduce the cash that private equity funds must maintain in banks they acquire.

Private equity funds have been criticized as excessive risk-takers. But with fewer healthy banks willing to buy ailing institutions, the banking crisis has softened the FDIC's resistance to private buyers.

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