FDIC’s Bank Deposit Insurance Fund Going Broke: No Surprise To Anyone

If there is anything to be learned from the current crisis, it is the fact that Washington has a habit of screwing things up.

From setting up corrupt and self-serving government-sponsored enterprises that fail to accomplish their stated goals, to ill-conceived and underfunded insurance schemes, guarantee programs, and safety nets that don’t provide the benefits claimed, to rules and regulations that leave those who are “protected” high and dry, it’s amazing how often good intentions go wrong when the politicians are in charge.

Given that, the following Agence France-Presse report, “FDIC Warns US Bank Deposit Insurance Fund Could Tank,” should come as no surprise to anyone.

The US government is warning banks that its deposit insurance fund could go broke this year as bank failures mount.

The head of the Federal Deposit Insurance Corporation, Sheila Bair, in a letter to bank chief executives dated March 2, defended the FDIC’s plan to raise fees on banks and assess an emergency fee to shore up the fund and maintain investor confidence.

Bair acknowledged the new fees, announced Friday, would put additional pressure on banks at time of financial crisis and a deepening recession, but insisted they were critical to keep the insurance fund solvent and protect.

“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote.

The FDIC chief said in the letter that the rapidly deteriorating economic conditions raised the prospects of “a large number” of bank failures through 2010.

“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,” she wrote.

The FDIC last Friday announced it would impose a temporary emergency fee on lenders and raise its regular assessments to shore up the rapidly depleting deposit insurance fund that insures individual customer deposits up to 250,000 dollars.

A week ago the FDIC reported a sharp depletion of the deposit insurance fund in the fourth quarter due to actual and anticipated bank failures, to 19 billion dollars from 34.6 billion in the third quarter.

The FDIC said it had set aside an additional 22 billion dollars for estimated losses on failures anticipated in 2009.

Subscribe by RSS Subscribe by Email