Is it possible that the FDIC (Federal Deposit Insurance Corp.) could go bankrupt? The concern has escalated as more reports indicate a larger number of banks crashing in 2010 than as of recent.
FDIC insured banks have always offered the piece of mind that if anything ever happened to a bank your savings would be safe under the umbrella of The FDIC. Just a few short years ago FDIC covered accounts up to $100,000, an amount more than sufficient for the average citizen to have their entire savings covered by the insurance. Last fall the coverage was expanded to $250,000 because the banking crisis was applying pressure to small businesses many of which had holdings above and the $100,000. This expanded coverage however puts more stress on the funds of the FDIC.
In response to the impending insolvency of the FDIC, Sheila Bair the FDIC chairman announced the approval of a one-time emergency fee along with other assessment increases on the banking industry. Naturally the bankers were furious, small community bankers can’t help but feel that they are paying the price for the greed and incompetence of Wall Street bankers. Not to mention the fees could eat up from 50% to 100% of their 2009 earnings. Of course these arguments will fall on deaf ears, as will the arguments of the bank customers as we will ultimately pay these additional fees; the banks will surely pass them on to us anyway.
The fees proposed by the FDIC would generate $27 billion by the end of 2009. The FDICs coffers were emptied of almost half its funds in the final quarter of 2008; the fund lost $15.7 billion, falling from $34.6 billion to $18.9 billion.
The FDIC has access to $50billion form the Treasury Department, but Chairman Shiela Bair said, “Banks, not taxpayers, are expected to fund the system”, and that asking tax payers to flip this bill would give a black eye to all banks and not just the ones that are in trouble and going bankrupt which is causing the depletion of FDIC Funds in the first place.
This news does not bode well for the economy in general. It is sure to bring down consumer confidence; some may even move to withdraw their savings out of fear of loosing it if their bank fails.
But would the government even let the bank insurer go broke?
Most think not, especially when the problem can be fixed without the redirecting of any more tax dollars.
That being said, what would the effects of an FDIC failure be were it to happen?
For all the riches of banks and insurance companies, it takes a Cracked World to see a broke insurer of banks. Think of the irony.
