I won't call it a crisis or meltdown or chaos, since those terms are sufficiently vague as to be non-descriptive. So let's call it a banking "situation".
If Washington Mutual goes belly up, and if others follow, can the US Federal Deposit Insurance Corporation cover their insurance obligations? Maybe, maybe not [h/t to Jack, who points out that Nouriel Roubini has been making this point for quite some time]:
The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday. ...
The fund, which is marking its 75th anniversary this year with a "Face Your Finances" campaign, is at $45.2 billion — the lowest level since 2003. At the same time, the number of troubled banks is at a five-year high.
FDIC Chairman Sheila Bair has not ruled out the possibility of going to the Treasury for a short-term loan at some point. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with Treasury — something that has never been done. ...
A Washington Mutual failure would dwarf the largest bank collapse in U.S. history — Continental Illinois National Bank in 1984, with $33.6 billion in assets.
By comparison, WaMu and its subsidiaries had assets of $309.73 billion as of June 30 and IndyMac had $32 billion when it shut down.
Arthur Murton, director of the FDIC's insurance and research division, said that when large institutions have failed in recent years, the hit to the fund has been about 5 to 10 percent of the company's assets.
As with AIG, an important question becomes, "Who insures the insurers?" And if it must be the taxpayers, look for more regulations to reduce the moral hazard problem posed by insurance company executives who do not bear the full brunt of their risk-taking decisions.