So, You THINK The FDIC Has Your Deposit Insured
Whoopsy! Turns out those bozos in Congress let banks get away without paying into the insurance fund. You'll love this Boston Globe story by Michael Kranish, "Now-needy FDIC collected little in premiums - With fund going strong, banks didn't pay for decade." In short, if a big bank like Citibank goes under...well, don't count on them having money to bail out all the depositors:
WASHINGTON - The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.
Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending.
To possibly reduce the fee increase, the FDIC has asked Congress for the temporary authority to borrow as much as $500 billion from the US Treasury - up from the current $30 billion limit - in case the number of bank failures increases even more dramatically. If Congress approves the measure, to borrow more than $100 billion, the FDIC would still need permission from the Federal Reserve, the Treasury Department, and the White House.
As of Dec. 31, the FDIC had $18.9 billion in its insurance fund - down from $52.4 billion a year earlier - in addition to $22 billion that it has set aside for pending bank failures. The agency has projected it will need $65 billion to take over failed banks through 2013.
But if the FDIC suddenly had to take over a giant bank such as Citigroup or Bank of America, the fund would be drained "in a flash," said Cornelius Hurley, director of the Boston University law school's Morin Center for Banking and Financial Law.
via Consumerist
Just swell. It just keeps getting better and better. Where was the accountability all those years? It mystifies why in hell they wouldn't be allowed to demand premium payments for all those years. I don't care how damned good things were at the time. That's why it's called insurance. You pay premiums when things are good in case something unforeseen happens and they go bad. So much for those of us who won't open an account that isn't insured. Damned!
We need to get back to personal responsibility but you've got to admit the example being set is the exact opposite. Why be responsible when you're more screwed if you are than if you aren't.
T's Grammy at March 12, 2009 9:10 AM
Further proof that the government screws up everything it touches.
What are these things you call "accountability" and "responsibility?"
ahw at March 12, 2009 9:37 AM
And people wonder why I refuse to get a "real job" and "contribute to society"
FUCK society, seriously any terroristS moniteRing out there, crash a plane in the the CDC, or Yellowstone
lujlp at March 12, 2009 9:47 AM
major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.
If I recall correctly -- Our good buddy, pal, friend -- Billy Boy Clinton was re-elected in '96 and did his re-inauguration in 1997. Somehow, I'm sure that will be overlooked when the dems start throwing blame around.
But no matter what, we are so screwed.
Jim P. at March 12, 2009 10:58 AM
The 500B is for Citigroup in my humble opinion. They have 700B of debt (200B of which is for FED open market operations), 650B of deposits, and you don't want to know what the assets look like ;)
Charles at March 12, 2009 12:14 PM
One of the big problems with Citi is that they are so much more than a deposit bank, and no single entity has regulatory authority over them; it's what will make unwinding them incredibly difficult when they need to be broken up into solvent and insolvent portions. In the future, it's clear that these sorts of massive, multipurpose entities need to be prevented. "Too big to fail" is a terrible economic concept.
cheezburg at March 12, 2009 12:42 PM
Isn't this fiasco getting more ridiculous by the moment? Isn't this just additional evidence that big O government isn't the answer? EVERYTHING that the government touches turns to crap and they want to take over healthcare? Hell No!
Now that the government didn't collect from banks for 10 years it is now punishing those smaller banks who acted responsibly and didn't participate in toxic home loans.
Federal government needs to get the hell out of business, banking and people's lives.
Mark at March 12, 2009 8:51 PM
Unbelievable....
crella at March 13, 2009 1:26 AM
Mark, you are right on when you say that smaller banks who acted responsibly are now having to pay for something they didn't do.
The bank I previously worked (as did all banks) got a letter from the FDIC stating that they had to pay 20bp on all deposits in ONE LUMP SUM. For this small $65 million dollar bank that is equal to half of 2008's profit. Bye-bye raises for those puny bank tellers, bye-bye decent health insurance...you get the picture.
It totally sucks!
bankgirl at March 13, 2009 12:00 PM
Yet another way the little guy gets screwed to bail out Citibank and the Great Left Wing Mortgage Machine.
brian at March 13, 2009 1:06 PM
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