As the number of problem U.S. banks swells to the hundreds, the Federal Deposit Insurance Corporation is increasingly hard-pressed to fill in the gaps where institutions have put depositor’s funds at risk.
Unfortunately, a dire prediction made by government officials in early 2009 has come true: the FDIC’s deposit insurance fund is now broke, according to published reports.
“The deposit insurance fund dropped by $18.6 billion during the third quarter of 2009 to negative $8.2 billion, as the Federal Deposit Insurance Corp. set aside $21.7 billion in provisions for additional bank failures,” The Wall Street Journal reported. “This is the second time in the agency’s history that the balance has fallen into negative territory.”
In March the FDIC took steps to stave off the possibility that its insurance fund would run dry, instituting new fees on banks, forcing them to pay to protect consumers.
The head of the Federal Deposit Insurance Corporation, Sheila Bair, wrote to bank leaders declaring that “without these assessments, the deposit insurance fund could become insolvent this year.”
According to the FDIC’s most recent quarterly report, there were 552 “problem” banking institutions in the U.S., the most since the end of 1993.
“In its state of the industry report, the F.D.I.C. reported that banks posted a $2.8 billion gain in the third quarter, after a $4.3 billion loss in the previous period,” The New York Times reported. “The number of bad loans of nearly every stripe – credit cards, mortgages, small business and commercial real estate – continue to grow, albeit at a slower pace.”
BizJournals added: “Fifty institutions failed during the third quarter, bringing the total number of failures in the first nine months of 2009 to 95. As of Nov. 21, 124 banks have failed nationwide.”
“The FDIC has not yet accessed a temporary $500 billion fund of capital it has available to it from Treasury for the insurance fund,” Marketwatch noted. “The FDIC estimates that bank failures will cost the agency as much as $100 billion over the next five years, with the majority of the losses taking place in 2009 and 2010. The agency may require banks to pay additional assessments to cover losses to the fund if bank failures expand in greater numbers than anticipated by the agency.”
When banks insured by the FDIC are seized or declare bankruptcy, the agency returns depositors’ funds up to $250,000.
Read the FDIC’s full Q3 2009 report [PDF link].
An earlier version of this report said the FDIC insures depositors’ funds up to $100,000. The government-run agency expanded its coverage for consumers from $100,000 to $250,000 in 2008. President Obama further extended the additional cushion until the end of 2013.
By Stephen C. Webster
Tuesday, November 24th, 2009 — 9:50 pm
Source: The Raw Story
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