Wednesday, March 4, 2009

Money safe in the bank ?

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The Federal Deposit Insurance Corporation may run out of money.

As it stands now, the fund at FDIC insures over $7 Trillion in bank deposits among FDIC participating banks. Yet, the FDIC only has $18.9 Billion in its insurance fund. At the end of 2007, FDIC had $52.4 Billion, but was drained by bank failures in 2008.

The FDIC expects the rate of bank failures to escalate in 2009 and 2010. Some of the biggest names in banking could well be among those the FDIC takes into receivership in the coming months. Names such as Citi and Bank of America could spell disaster for FDIC, and the Federal government, should they not make it.

The FDIC has issued a one time assessment to all participating banks that could raise as much as $27 Billion. This assessment is being challenged by many smaller banks that feel they are being unfairly punished for the sins of some of their big brothers.

From Bloomberg;

"Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview.'

“I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.'

"The agency, which has released the change for 30 days of public comment, could modify the assessment to shift the burden to the large banks “that caused this train wreck,” Fine said. “Community bankers are feeling like they are paying for the incompetence and greed of Wall Street,” he said."

The increasing likelihood that the FDIC will put additional burden on the taxpayers should not be downplayed. How this will effect the government's ability to rein in other economic woes is uncertain. Unprecedented amounts of new Treasury notes are already slated to be sold to fund the current stimulus package and the bank bailout programs. The countries that have been traditional buyers of US Treasuries are having their own economic problems, and this has caused them to dramatically reduce, or eliminate, buying any additional foreign debt.

Additional stress to that amount via FDIC could be the straw(s) that break the camel's back.

"Consumers should watch this issue closely, said Edmund Mierzwinski, consumer program director at U.S. PIRG, a Boston- based consumer-watchdog group.'

“I wouldn’t take their money out of the bank yet,” Mierzwinski said. “If the FDIC is saying that there is this serious problem, then we should all be concerned. I think there is a chance the FDIC is going to have to ask taxpayers for money in the future.”

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