FDIC Not Acting Very Sophisticated

Discussion in 'Current Events' started by JimofPennsylvan, Sep 11, 2009.

  1. JimofPennsylvan
    Offline

    JimofPennsylvan VIP Member

    Joined:
    Jun 6, 2007
    Messages:
    385
    Thanks Received:
    56
    Trophy Points:
    78
    Ratings:
    +83
    The Federal Deposit Insurance Corporation (FDIC) the government organization which insures bank accounts for individual Americans money is in trouble they are running low on money to back deposits. Last year the FDIC had $45 billion dollars to back deposits now they have around $10 billion. This is because eighty plus backs had to be taken over by the FDIC this year because of insolvency issues. Before the banking crisis is over America could see another 100 to 150 banks be taken over by the FDIC. It is clear that the FDIC has to get its hands on a significant amount of money to pay for their bank takeovers or they won’t be able to do their job. The only options the FDIC has per the FDIC to solve this “need for cash” problem is to either assess fees on their member banks or tap the $100 billion credit line the FDIC has with the U.S. Treasury. In the past year, the FDIC assessed a special fee on banks and received $5.6 billion from such an assessment, there was a big public hullaballoo over this assessment so it sure seems like the realistic scale of future assessments wouldn’t be sufficient to solve the FDIC’s money problem; the FDIC faces losses of more than $21 billion with the 80 plus banks so far taken over this year. The FDIC borrowing big sums of money from the Treasury isn’t an ideal solution because one it triggers public anger over government bailouts and it lowers the reputation of America’s banking industry from a world wide reputation standpoint.

    The FDIC has available to it another option which if they act like a group smart of people they will take advantage of. The FDIC made over $9 billion over the past twelve months guaranteeing borrowing by U.S. banks. The program was started in the past twelve months when the credit markets froze and banks had huge problems borrowing money especially at reasonable rates. This program is scheduled to end at the end of October of this year. The reasons for ending the program are understandable banks can now borrow at reasonable rates, some participating banks made huge and rather unseemly (considering their strong financial reports) profits off the program and concern about putting the FDIC on the hook for a huge amount of bank debt if respective banks default on the respective debt.

    The reasons for ending the program don’t trump the reasons for continuing this bank debt insurance program. The single compelling reason for continuing this program is the FDIC can really use the fees from this program, the likely billions of dollars the FDIC would get in fees per year are extremely valuable to the mission of the FDIC at the current time, why throw this resource away now it doesn’t make any sense. Moreover, the FDIC could use this program to increase the capital reserves in banks which is a loudly publicly proclaimed goal of government officials for the U.S. banking industry. Plus, for those banks which are really hurting from commercial loan and other loan defaults, this program could be medicine for them to become financially strong again. Of course the FDIC should bar Goldman Sachs and the other big profitable banks from participating in the program, the unseemly profits they make considering their overall profits call for this conclusion. Also, the FDIC could get agreements from participating banks that they wouldn’t use the profits from their participation in this program to increase their dividends rather they would use it to strengthen the balance sheet of the bank. Lastly, having this FDIC program which is a tool to inject capital into banks facilitates banks being able to better lend to American families and businesses which helps the economy. Keeping this FDIC program seems like a multiple win situation, let’s hope the governmental officials don’t steal defeat from the jaws of victory here.
     
  2. waltky
    Offline

    waltky Wise ol' monkey Supporting Member

    Joined:
    Feb 6, 2011
    Messages:
    20,887
    Thanks Received:
    1,791
    Trophy Points:
    215
    Location:
    Okolona, KY
    Ratings:
    +3,885
    Gettin' away with runnin' a bank in the ground...
    :eusa_eh:
    FDIC too slow to sue officers and directors at failed banks, critics say
    March 14,`11: As the chief undertaker of the Great Recession, the Federal Deposit Insurance Corp. has briskly shuttered 345 failed banks since 2008, at a cost to the government insurance fund of about $76 billion.
     
  3. waltky
    Offline

    waltky Wise ol' monkey Supporting Member

    Joined:
    Feb 6, 2011
    Messages:
    20,887
    Thanks Received:
    1,791
    Trophy Points:
    215
    Location:
    Okolona, KY
    Ratings:
    +3,885
    Sheila Bair leavin' FDIC...
    :confused:
    FDIC Chairman Sheila Bair leaving agency
    9 May`11 WASHINGTON (AP) — Sheila Bair is stepping down as chairman of the Federal Deposit Insurance Corp. this summer, ending a five-year term in which she helped craft the government's response to the 2008 financial crisis.
     

Share This Page