Is The FDIC Running Out of Money?

Hi All,

Don’t know if you saw this headline, but Bloomberg has quoted Federal Deposit Insurance Corporation chairwoman Sheila Bair as saying the FDIC might run out of money unless they increase bank fees. Right now the FDIC wants a fee of 20 cents per $100 bucks of insured deposits to cover the shortfall. However, the finance industry is opposing it because of concerns about corporate profits (here).

This is important, if you have money in a bank, the Federal Deposit Insurance Corporation is the agency that backs your deposits in case of bank failure. If they don’t have enough funds, its a signal that there might be problems if additional banks go under.

Are more banks going to go under? Who knows, but at first glance the story does not look encouraging. The FDIC has been putting smaller banks into receivership at an increasing rate; last December it was 3, this January they put down 6 and in February the figure was 10 (1). Most of these have been smaller regional banks. If another one of the major retail banks files for bankruptcy, the FDIC could be looking at a serious problem.

The agency has requested that congress increase their borrowing limit. According to the representative I spoke with, they had no expectations as to whether congress would meet their request, but since the Feds have been throwing money around like crazy, its a good bet our elected representatives will comply. At the same time it is important to be aware of the money shortfall and how it may affect your wealth.

Best,

James