FDIC: Fund could be insolvent this year

Discussion in 'Economy' started by DavidS, Mar 5, 2009.

  1. DavidS
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    DavidS Anti-Tea Party Member

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    Bloomberg.com: News

    March 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the fund it uses to protect customer deposits at U.S. banks could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

    “Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.

    “A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”

    The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said.

    The fund, which lost $33.5 billion in 2008, was drained by 25 bank failures last year. Sixteen banks have failed so far this year, further straining the fund.

    Angry Bankers

    Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview.

    “I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.

    “The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” Bair wrote. “We did not want to impose large assessments when the industry and economy are struggling. We searched for alternatives but found none better.”

    The agency, which has released the change for 30 days of public comment, could modify the assessment to shift the burden to the large banks “that caused this train wreck,” Fine said. “Community bankers are feeling like they are paying for the incompetence and greed of Wall Street,” he said.

    Legal Constraints

    Bair dismissed that suggestion.

    “For risk-based assessments, our statute restricts us from discriminating against an institution because of size,” Bair wrote.

    The deposit insurance fund won’t dry up because the government can get funds from the industry and congressional appropriations, and borrow from the Treasury, Chip MacDonald, a partner specializing in financial services at law firm Jones Day, said today in a telephone interview.

    “As a depositor, I am not worried in the least,” MacDonald said. “No one is going to let the FDIC go without any money.”

    Consumers should watch this issue closely, said Edmund Mierzwinski, consumer program director at U.S. PIRG, a Boston- based consumer-watchdog group.

    “I wouldn’t take their money out of the bank yet,” Mierzwinski said. “If the FDIC is saying that there is this serious problem, then we should all be concerned. I think there is a chance the FDIC is going to have to ask taxpayers for money in the future.”

    No Taxpayer Funds

    Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion.

    “Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.”

    The FDIC “will revise the interim rule, if appropriate, in light of the comments received,” the agency said in a Federal Register notice.

    To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .
     
  2. auditor0007
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    auditor0007 Gold Member

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    It's no big deal. They'll just print more money to cover it.
     
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  3. wimpy77
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    wimpy77 Member

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    exactly they will get more money from the fed if need be.
     
  4. MalibuMan
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    MalibuMan Member

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    Shit I'm thinking about withdrawling all my money from the banks. Can't trust anybody these days. It would be nice to have the money going toward pig odor to make sure the FDIC stays healthy, but nooooooooo.
     
  5. DavidS
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    DavidS Anti-Tea Party Member

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    In the words of Ed McMahon: You are correct, sir!

    Bill Seeks $500 Billion for FDIC Fund - WSJ.com
     
  6. editec
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    editec Mr. Forgot-it-All

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    How convenient for those of us with nothing to lose.

    We poor have all the luck!
     
  7. Toro
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    Toro Diamond Member

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    Of course, the stories just get scarier and scarier!

    If there is one thing in the entire country the government will backstop, it is the FDIC.
     
  8. editec
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    editec Mr. Forgot-it-All

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    True.

    Another socialist plot to save capitalism, of course.

    Damn those socialists!

    If capitalism wants to kill itself, who are those bleeding heart socialists to stop it?

    Don't those damned collectivists know that freedom's just another word for nothing left to lose?
     
  9. auditor0007
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    auditor0007 Gold Member

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    Maybe the government should go to Vegas and double down on the pass line. You think Vegas would pay off if the gov't hit 7 or 11?
     

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