FDIC's Bair warns on bank deposit insurance fund

[EscortBiz]

this can put serious fear into the few who still have large amounts in bank accounts

url]http://www.google.com/hostednews/ap/article/ALeqM5gv3IJ-X4AJ-eO5sSEq0_QIz7NWogD96NC25O2[/url]


WASHINGTON (AP) — The head of the Federal Deposit Insurance Corp. has warned that the fund insuring Americans' bank deposits could be wiped out this year without the money the agency is seeking in new fees from U.S. banks and thrifts.

FDIC Chairman Sheila Bair acknowledged, in a letter to bank CEOs, that the new increased fees and hefty emergency premium the agency voted to levy last week will bring a "significant expense" to banks, especially amid a recession and financial crisis when their earnings are under pressure.

"We also recognize that assessments reduce the funds that banks can lend in their communities to help revitalize the economy," Bair wrote.

But given the accelerating bank failures that have been depleting the deposit insurance fund, she said, it "could become insolvent this year."

"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," Bair wrote in the letter dated Monday to the chief executives of the nation's 8,305 federally insured banks and thrifts.

The industry, especially smaller community banks, has said the new insurance fees will place an extra burden on an already struggling sector. A federal banking regulator said last week the new premiums will unfairly burden smaller banks that didn't contribute to the financial crisis with reckless lending.

As loan defaults have soared, reflecting the ravages of rising unemployment and sliding home prices, bank failures have cascaded and sapped billions out of the fund that insures regular accounts up to $250,000. The fund now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

The FDIC now expects that bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. There have been 16 bank collapses already this year, following 25 in 2008 — which included two of the biggest savings and loans, Washington Mutual Inc. and IndyMac Bank.

The new insurance fees are meant to raise $27 billion this year to replenish the fund.

Bair said the plan protects bank depositors as well as taxpayers, because it likely means the FDIC won't have to go to the Treasury Department and tap public money to replenish the insurance fund.

Bair has not ruled out that possibility for a short-term loan, but said she doesn't expect to take the more drastic action of using its $30 billion long-term credit line with Treasury — something that has never been done.

"Some have suggested that we should turn to taxpayers for funding," she said in her letter to the bank executives. "But banks — not taxpayers — are expected to fund the system, and I believe Congress would look skeptically on such a course of action."

Furthermore, she said, turning to taxpayers "could open up a whole new debate about the degree of government involvement in the affairs of insured banks."

The FDIC plan puts new charges on a battered industry while the Obama administration is seeking to pump as much as $750 billion in additional federal aid into ailing banks under its financial rescue plan. The FDIC, as a regulatory agency charged with protecting the insurance fund, acts independently from the administration.

The new emergency premium, to be collected from all federally insured institutions on Sept. 30, will be 20 cents for every $100 of their insured deposits. That compares with an average premium of 6.3 cents paid by banks and thrifts last year.

The FDIC also raised the regular insurance premiums for banks to between 12 and 16 cents for every $100 in deposits starting in April, up from a range of 12 to 14 cents.

[Fletch XXX]

i wonder what is the largest amount of money sitting in an account... not investments, just straight up sitting there ready to be withdrawn,...

[EscortBiz]

Originally Posted by Fletch XXX

i wonder what is the largest amount of money sitting in an account... not investments, just straight up sitting there ready to be withdrawn,...

gotta be accounts with 500 mil +

[BuddyLee]

This should really put folks on notice. Im surprised they actually came out and said this. Almost like yelling fire in a crowded building.

[AaronM]

Originally Posted by Fletch XXX

i wonder what is the largest amount of money sitting in an account... not investments, just straight up sitting there ready to be withdrawn,...

As I recall, FDIC only covered up to 100k until last year when they gave it a "temporary" bump to 250k. The 250k limit is only good through this year....Not that it really matters...If the FDIC fails then everybody could be fucked anyway.

[Splum]

Originally Posted by BuddyLee

This should really put folks on notice. Im surprised they actually came out and said this. Almost like yelling fire in a crowded building.

Where there is smoke there is fire.

[xxxdesign-net]

Most people live in lalaland and this news is meanigless to them.. Talk to them about the octo mom or Rhianna and their eyes will light up.. This crises has just begun

[tranza]

banks are going crazy...

don't worry they will just print more benjis