This story is from Bloomberg on September 29. As of September 30, the FDIC insurance fund is broke – out of money.
The solution?
They’re asking lenders to pre-pay 3 year’s worth of premiums in order to raise the needed $45 billion to keep the insurance fund operating. This request comes after 120 banks were shut down over the past 2 years.
According to the Bloomberg article, bank failures may cost the FDIC up to $100 million over the next 3 years, with about half of those costs already incurred. This from FDIC Chair, Sheila Bair:
“What we are proposing to do is to tap the ample liquidity of the banking industry to improve our own liquidity position without borrowing from the Treasury.”
The insurance fund isn’t expected to be ‘in the black’ until 2012.
The FDIC has several available options to raise cash – they can assess a special charge on banks, borrow from the Treasury or require banks to pre-pay their next 3 year’s worth of premiums – the action that was unanimously adopted by the FDIC board.
Two comments:
First, given the level of remaining commercial and residential real estate debt, this option looks less than healthy. I am of the opinion this plan simply cannot fix the FDIC’s problem. Mark my words; there may be more of this to come.
Second, the reason many of the banks have liquidity is because of the federal bailout and the suspension of the mark to market accounting rules requiring banks to fairly value the assets they hold. Under the former accounting rules, banks likely lack the liquidity that Ms. Bair suggested.
The perfuming of the pig continues…
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