Concern Mounts About FDIC Deposit Fund; Roubini Says, “They’re Going to Run Out of Money, with Certainty”
July 20th, 2008Via: RTT News:
The FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits, FDIC Chairman Sheila Bair said Friday.
However, that fund is “a myth,” according to longtime banking consultant Bert Ely, and consumers may end up paying the price of what is expected to be a growing wave of bank failures.
NYU Economics Professor Nouriel Roubini predicts that Congress will have to intervene in order to bail out the deposit fund.
“They’re going to run out of money, with certainty,” he predicted. “Congress is going to have to recapitalize the FDIC, those $50 billion plus is not going to be enough, by no means.”
Indeed, on Friday afternoon FDIC Chairman Sheila Bair said in an interview on C-SPAN television that banks holding brokered deposits may be charged higher premiums in order to bring back the reserve to an acceptable size.
“I think that is something we need to factor into our premiums and charge higher premiums to banks that fit that profile,” she said in the interview, noting that the IndyMac failure was a big factor in the need for additional funds in the deposit insurance fund.
This means higher premiums for FDIC insured banks, analyst Ely noted, further complicating an already tenuous situation for the U.S. banking system. Banks will most likely pass the increased costs onto their customers, he said.
“Banks are going to pass it through to their customers through higher interest rates on loans, lower interest on deposit,” Ely predicted.
The FDIC has around $53 billion set aside to back up bank deposits up to $100,000 per depositor, one of the ways the organization is designed to ensure confidence in the banking industry. However, according to Ely, that $53 billion is “not really available.”
“The deposit insurance fund is as real as the social security trust fund,” Ely said, noting that only a “small fraction” of the $53 billion is actually available and “any losses beyond that will be assessed on the banks.”
The reserve, as of March 31, was valued at $52.843 billion, or 1.19 percent of the total insured deposits of $4.431 trillion. According to the Deposit Insurance Reform Act, the FDIC must have at minimum 1.15 percent of all insured deposits in the fund, with a target rate of 1.25 percent.
The failure of IndyMac, which is estimated to cost the deposit fund at minimum $4 billion, brings the target below 1.15 percent, forcing the FDIC to adopt a restoration plan that will restore the Deposit fund to 1.15 percent within 5 years, according to the Reform Act.
“The $4 billion loss would drop the fund down to about 1.10 ratio,” Ely explained.
“A small fraction”? Usually that means ten percent or less. So if only about 5.3G were available and the IndyMac bailout cost 4G, well then… So where is that other 47.7G if it is there in paper but not “available”?
The FDIC is not the only paper fiction of the government. Last night on reddit I read a comment by a person in the USA who had fallen into deep poverty from middle-class status after a job loss who described the social-welfare safety-net here as largely a paper-fiction because they make it very difficult to access.
I remember reading somewhere that much of what passes for gainful employment in the USA is the direct or indirect result of Federal Government spending. I wonder what’s going to happen when the Federal Government doesn’t have any more money to spend because the people and instituions who have been buying our treasury bonds don’t want to flush any more of their money down the toidy?
@Loveandlight-
Maybe that’s what all those plastic coffins are for/ Heh Heh.
Deal with the die of when the Federal government finally stops printing money.
The U.S. Goverment already has no more money to spend.
What’s that equation from accounting:
Your Assets have to equal Liabilities plus Owner’s Equity.
The version on the U.S. Government balance sheet is somewhat different. But not that much that there isn’t a gawd damn equation that has never balanced.
But then there has never been a FULL ACCOUNTING – verily, for the Pentagon. YAWN. What’s $3 what is it now trillion and counting? YAWN.
There is a roomful of douchebags somewhere out there dreaming up ways to cook the government books well past their “overdone” stage.
How many ways can you say “there is no more milk to be had from this cow? – or there are no more eggs to be had from this chicken?
I don’t know how many versions of the same I have written the same thing. IMAGINE. THE U.S. IS BANKRUPT.
All those welfare checks, bailouts, etc. its just FUNNY MONEY TRANSACTIONITonism.
Its a disease of deceipt and treachery.
I for one don’t think the U.S. goverment bankruptcy will be televised. It will be something like a scene from the movie “Brazil” where TV’s monitor or every move, and you can never turn your tv off or be branded as a traitor.
I also like V for Vendetta.
Yes I am a black minded thought thinker.
But I don’t think I’m a fool.