FDIC Fund Strained by Bank Failures May Lift Premiums
August 11th, 2008Via: Bloomberg:
The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17 percent of a government insurance fund and raise premiums for all banks, from Franklin National of Minneapolis to Bank of America Corp.
The closing of IndyMac in July, the third-biggest U.S. bank failure, may cost the fund $4 billion to $8 billion, in addition to an estimated $1.16 billion for seven closures through Aug. 1. Premiums for deposit insurance will likely rise, FDIC Chairman Sheila Bair said in a July 30 interview. A decision on the increase is due by the fourth quarter.
“It’s going to be a bloody, expensive mess for the banking industry,” said Bert Ely, president of Ely & Co. Inc., a bank consulting firm based in Alexandria, Virginia. “Healthy banks are paying for the mistakes made by failed banks.”
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 might drain as much as 15 percent from the fund. Seven other banks will take about $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.
Let me say, in anger… , that it’s about f’…in time the banks paid for something. My health insurance pays for everyone that doesn’t have it (mind you I’m all for universal health and consider it a crime we don’t have it in the us) my home owners insurance goes up when insurance companies lose money on katrina or the like, my commercial policy the same. The insurance co. once told me they raised their premiums because they lost money in the internet bust (just wait for the real estate bust increases!) I’ f….in sick of paying for everyone else’s mistakes. How much you want to bet this will be passed on to the customer. I know this is a relatively small matter in the scheme of the evil empire, but damn… I’ve had it!
Of course, that what will happen. All of the gains of our economy are privatized and hogged by those at the top. And all the losses are socialized, and dumped on the rest of us. The reason that “benevolent”, guiding hand of capitalism in our *free market* economy is invisible, is because its giving us the finger.