FDIC deposit insurance affected in a default situation?

[Poll_Blind]

I was at the bank yesterday and the particular transaction involved me having to wait at the teller's station for about 5 minutes. Right next to the window was a little bragging plaque for FDIC. It said "Backed up by the full faith and credit of the United States". LOL, any time I see that phrase from now on I will think of this default crisis.

Anyway, my question is, how would a default situation impact FDIC deposit insurance?

PB

[drm604]

1. Good question.

:shrug:

[banned from Kos]

2. Not at all. Although the FDIC is low on funds the safety of US deposits

is 100% assured - see TARP and the Fed.

Unlike popular opinion - the US FDIC will fuck over a bank and kill it - see Washington Mutual and Wachovia among others to protect DEPOSITORS.

[SheilaT]

3. I seriously doubt there's anything to worry about.

The default has to do with the government paying its bills, not how much the individual banks have to pay off depositors.

[westerebus]

4. Depends on the panic.

The FDIC insures deposits by charging banks a fee. They have a credit line to the Treasury also. Depending on the number of failures should there be a panic, the FDIC would run out of reserves quickly. If they had to tap into the Treasury that would increase the deficit. If there was nothing to borrow when the debt ceiling is passed, game over.

Money market funds would fail first as sellers of mutual funds would cash out. The FED opened up its reserves last go round when it looked like they would break the buck. The FDIC does not have a line of credit with the FED.

[banned from Kos]

6. "break the buck" - I had forgotten about that.

You're right, no direct liability exists from the FDIC to the Fed but if things get tough the Fed will be there like in 2008.

[westerebus]

10. The FED won't be there for depositors.

Just like 2008. Unless they are the Too Big To Fail.

Best bet in a panic would be a bank holiday or a limit on withdrawals.

If you look at the fine print that limit is in there already.

The FDIC can limit the damage, it doesn't have the power to stop it.

It doesn't have the funds either. Which is why they are selective on what banks they are taking over.

I some times think that's the reason so much of the foreclosures are kept off the market or slowed down.

The banks don't want the FDIC to show just how bad their books really are.

Dammed if they do, dammed if they don't.

[Renew Deal]

5. That should make for quite an exciting Bank Bust Friday!

:nuke:

[DevonRex]

7. All I know is that salary, current retirement check and an ongoing

retirement fund are in danger in my family alone.

[PoliticAverse]

8. FDIC insured deposits will still be paid if necessary eventually. n/t

[Poll_Blind]

9. Thank you all for taking the time to answer or give an opinion!

PB

[PA Democrat]

11. The FDIC is technically not funded by the government

but rather by member banks.