Another Hit for Banks - They May Need to Pay More to Replenish FDIC Fund

The FDIC's insurance may lose 17% of its capital as bank failures have drained it. It's expected to to the point where the FDIC may ask other banks to pay more to replenish the fund.

The FDIC's insurance may lose 17% of its capital as bank failures have drained it.  It's expected to to the point where the FDIC may ask other banks to pay more to replenish the fund. 

Bloomberg writes:

"The pace of bank closings is accelerating as financial firms have reported almost $495 billion in writedowns and credit losses since 2007. The FDIC's ``problem'' bank list grew by 18 percent in the first quarter from the fourth, to 90 banks with combined assets of $26.3 billion. A revised list is due this month. The insurance fund had $52.8 billion as of March 31.

The FDIC estimated its shutdown of California-based mortgage lender IndyMac, which filed to liquidate its assets last month, might drain as much as 15 percent from the fund. Seven other banks will take $1.16 billion, or about 2 percent.

The potential $9.16 billion in withdrawals would be the highest since the insurance account was created in 1933, Diane Ellis, the FDIC's associate director of financial-risk management, said in a telephone interview. Bank failures pulled a record $6.9 billion from the fund in 1988 during the savings- and-loan collapse, Ellis said."

Many analysts expect a rash of bank failures of the next coupe of years as the mortgage mess continues to wreck havoc on bank's balance sheets.  This will further draw down the FDIC.

What happens if the FDIC insurance fund is drawn down to $0?  In that case, the Federal Government will step in and allocate more money as it did with the S&L crisis in the 1980s. 

While your FDIC insured money is safe, we could all be paying more in taxes, bank fees, interest rates on loans because of the poor lending decisions over the last 10 years.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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