Last September, I wrote about the questionable status of the Federal Deposit Insurance Corporation (Don't Count On the FDIC). Well, on Friday, February 27, the FDIC announced that it would charge banks an emergency fee of 20 cents per $100 of deposits, hoping to generate $27 billion in premiums for 2009, a long shot considering they only collected $3 billion in premiums for 2008. The FDIC estimates that bank failures could cost the fund $65 billion by 2013.[1]
According to the FDIC, 16 banks have failed in the first 2 months of 2009, compared to 25 in ALL of 2008, just 3 in 2007 and none in 2006 and 2005.[2]
The most recent (3rd quarter, 2008) report from the Chief Financial Officer, showed the fund balance at $34.59 billion, including $32.56 billion in "US Treasury Obligations" and only $854 MILLION (less than 2 1/2%) in cash a decline of over 90% in just 3 months![3]
As of December 31st 2008, the Deposit Insurance Fund (DIF) Ratio declined to a dangerous 0.40%! In other words, the FDIC had a fund balance of about $19 billion insuring $4.76 TRILLION in deposits.[4] The FDIC is required to maintain the DIF ratio at or above 1.15%.[5] The DIF broached the minimum sometime between March and June of 2008.
To make matters worse, the Emergency Economic Stabilization Act of 2008 directs the FDIC not to consider the temporary coverage increase to $250,000 in setting assessments[6], thus presenting a more favorable position than the facts would suggest. Wouldn't the rest of us be in jail if we tried something like this?
I get the impression that the FDIC is in panic mode as one sizable failure could wipe out their cash, but then, they are backed by the "good faith and credit of the US Treasury", which is..duh..empty!
Angier is self-employed in agri-business and can be reached at chuckangier@gmail.com.
[1] Financial Times, February 28, 2009
[2] FDIC Failed Bank List, March 1, 2009
[3] DIF Balance Sheet, 3rd quarter, 2008
[4] FDIC 2008 4th Quarter Banking Profile, Page 15
[6] FDIC 2008 4th Quarter Banking Profile, Page 15
©2009 Chuck Angier, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Monday, March 2, 2009
Last modified: Monday, March 2, 2009
The views expressed in this article are those of Chuck Angier only and do not represent the views of Nolan Chart, LLC or its affiliates. Chuck Angier is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Report violation by Chuck Angier of Nolan Chart LLC's terms of use policy.
| More Articles By Chuck Angier |
Reader Comments:
Posted By: Jake, the champion of the constitution
Date: 2009-03-02 04:12:08
great article Chuck! - Jake
Posted By: David S
Date: 2009-03-02 08:33:24
The FDIC is backed by the full faith and credit of the US government. [link edited for length]
Now admittedly the US government is flat broke with a current debt of $11 trillion and unfunded future liabilities of $40 trillion, so they don't actually have any money. But they do have the printing presses. My guess is that they will just print the money or create it electronically. Of course that's likely to cause inflation which means you will get your money but it won't buy much.
Posted By: gene
Date: 2009-03-02 09:16:55
Good Article Chuck.
They will print any money they need as they go. The purpose of the FDIC is to get us to put our money in banks, thinking it is safe, and then the banks can make money off our money in risky investments. In a sense, they are creating two dollars for every dollar.