FDIC won't go bankrupt-at least for now.

[Nikki Stone1]

While you jackasses are arguing over a rapist/movie director, here's what has been happening to your money:

http://www.nytimes.com/2009/09/30/business/economy/30regulate.html?_r=1&hp=&adxnnl=1&adxnnlx=1254244207-EBEn5RTjRTO2NttqBuwNxw&pagewanted=print

September 30, 2009
F.D.I.C. Moves to Replenish Bank Fund

By STEPHEN LABATON
WASHINGTON — Acknowledging that they had greatly underestimated the problems plaguing the nation’s banking system, federal officials proposed a plan on Tuesday to replenish the fund that protects bank depositors.

They also announced that the fund, which began the year with more than $34 billion on hand but has been battered by bank collapses, would fall into deficit this week.

The plan proposed by the Federal Deposit Insurance Corporation would, in effect, have the nation’s banks collectively lend money to the insurance fund by requiring them to prepay their annual assessments this year, which they would otherwise pay over the next two years.

The plan would raise $45 billion from the banks to replenish the fund, which is suffering severe problems both with its capital and liquidity.

Officials said that the plan would be less expensive than a direct loan from the banks — an idea that many banks supported — because no interest would have to be paid and because the plan would not be voluntary....

...The plan proposed by the deposit insurance agency was a partial victory for industry executives and lobbyists, who fought against the idea of levying another special assessment on the banks. Last May, an additional 5 cents was collected for every $100 in deposits as a special assessment on top of the regular premiums....

There was a split in the industry about whether the fund should borrow from the Treasury, as it had after the savings and loan crisis, with the loan to be repaid later by the banks. Some saw that as a low-cost way of replenishing the fund, while others opposed it because of fears that it would be seen as another taxpayer bailout and could come with a new round of conditions on the banks in areas like executive pay.

The prepayment option also offers a significant bookkeeping benefit to the industry. If the plan is ultimately approved, banks will be able to list the prepayment as an asset on their books, and not charge it against earnings until the time when the payment would normally have been due...

So

*The FDIC fund insures our deposits by charging banks yearly fees
*Because of Wall Street banks and investment firms, the FDIC was going into deficit (ie was broke)
*FDIC could have borrowed from the treasury with the loan to be repaid by banks (the best option, especially considering who was at fault.)
*Because banks and firms like AIG had already received "bailouts", the FDIC could not borrow from the treasury for fear that it would be seen as another bailout.
*Because a treasury loan would have placed restrictions on banks, like the amount of executive pay (GOD FORBID!), our treasury could not bail out the FDIC.
*The banks wanted the FDIC to borrow the money from THEM! They could get interest and make a profit. Even though, these banks were the ones that caused so much of the insolvency of the failing banks and the FDIC.
*The FDIC takes a middle course, requiring 2 years of fees up front this year to replenish the system.
*Lucky banks can list this prepayment as an "asset" on their books (yay for banks) and have no controls put in place (yay for banks).

So what happens next year?

[Nikki Stone1]

1. Apparently the FDIC was in worse shape than anyone knew.

"But for policy makers and the banking industry, the announcement on Tuesday that the insurance fund was in significantly worse condition than was projected just three months ago was startling, particularly since officials had already approved an initial effort in May to rescue the fund based on more upbeat projections. In May, officials projected $70 billion in losses to the fund from bank failures.

On Tuesday, the F.D.I.C. increased that loss estimate by more than 40 percent, to $100 billion in total losses — mostly over this year and next. They said that as of this week, the fund, which still had about $10 billion over the summer, would post a negative balance. Officials declined to give a figure, saying they are awaiting tabulations that could take another month or longer.

If nothing were done, the fund would find itself by early next year holding assets that are almost exclusively illiquid. At last report, the fund had about $22 billion in cash and other marketable securities, but as more banks have collapsed, most of those liquid assets have been exchanged for the less marketable assets seized from the failed institutions, like foreclosed property."

http://www.nytimes.com/2009/09/30/business/economy/30regulate.html?_r=1&hp=&adxnnl=1&adxnnlx=1254244207-EBEn5RTjRTO2NttqBuwNxw&pagewanted=print

[Libertas1776]

2. Yeah

yeah, yeah, FDIC going bankrupt, blah, blah, blah, my personal savings are at risk, yadda, yadda, yadda, cry me a river Argentina. Now lets get back to Polanski...:sarcasm:

Seriously though, thanks for sharing this. It's a real pity that a lot of DUers are more concerned with frivolity than they are with the pending collapse of the thin little net currently propping up their savings accounts.