Even healthy U.S. banks could have some serious earnings drag over the next few years.
Since the FDIC will probably need $100 billion, assuming 300 – 400 more banks fail, Richard Bove estimates that higher resultant FDIC premiums could drain 20-25% of the total banking industry’s earnings for two years.
If more banks fail than Mr. Bove expects, we’ll obviously have more failed banks and fewer healthy ones. Thus the earnings drag from FDIC premiums could go much higher should the U.S. financial system hit an unexpected bump.
Being a healthy bank doesn’t make you immune to the failings of your peers.
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