The FDIC is in trouble

September 29, 2009
Matt Isleib

 

So FDIC chairmen Sheila Bair who has repeatedly stated that the Federal Deposit Insurance Corp. is well capitalized must have “overlooked” some numbers. The insurance fund that protects our money on deposit with banks up to certain dollar amounts per account is close to running dry.

A total of 95 banks have failed this year so far and 28 in 2008. The FDIC is predicting now that it will run in deficit until 2013. Regulators now expect upwards of $100 billion in claims due to bank failures over the next 4 years and that was revised from earlier estimates of a need of $70 billion.

The Federal Deposit Insurance Corp. or (FDIC) collects its reserves from fees that banks are charged for the account protection. The FDIC also has a $500 billion credit line with the Federal Reserve but at this point is not prepared to use it just yet. Instead they are proposing for banks to pre-pay their fees to the tune of $ 45 billion to replenish an extremely dry well of liquidity from the FDIC. Tapping into the line of credit would ultimately mean a tax payer bailout of the FDIC something that Bair has adamantly stated would not happen. At the pace banks are folding the likelihood is very possible for the FDIC to turn to the Fed for help.