So.. FDIC Didn't collect from Banks during the years 1996 to 2006Somervell County Salon-Glen Rose, Rainbow, Nemo, Glass....Texas


 

So.. FDIC Didn't collect from Banks during the years 1996 to 2006
 


13 March 2009 at 2:22:52 PM
salon

I watched 60 Minutes last week, in which there was a bit showing how the FDIC takes over failing banks. Basically, they didn't tell anybody, went in after dark with accountants and auditors and put up the new sign in the morning. They do this with minium fanfare because, of course, they don't want customers to do runs on the banks. One of the people interviewed in the segment said, when asked about FDIC insured money, that there was money in FDIC to cover up to X amount of people's deposits and if not, then the government would make it good. Yeah, government. You and me.

Asked what she thought of that, Bair said, "I think people forgot that banks do fail and how the FDIC works their money was safe, it was safe, it was probably the safest place in the world to have your money because we were operating the institution at that point."

"What sort of hit was that on your balance sheet?" Pelley asked.

"I think we ended up to, it was over $9 billion for a $33 billion - yes, it was very stiff," she replied.

"The question becomes how many times can the FDIC do that at what point is the FDIC broke?" Pelley asked.

"The FDIC is backed by the full faith and credit of the United States, so if we need to - we try not to and don't want to - but if we need to, we can borrow from the Treasury to make up for any shortfalls," Bair explained. "We don't go broke. We're the government we are backed by the full faith and credit of the United States government."

I kind of wondered about what would happen or maybe when, the FDIC ran out of money and read this today, from Boston.com Turns out that the FDIC has a major shortfall, because...

it collected no insurance premiums from most banks from 1996 to 2006.

Because, um, Congress thought, gee, the banks are doing so well, why should they have to pay more into the fund?

And guess what, they DO want to borrow from the US Treasury now.

To possibly reduce the fee increase, the FDIC has asked Congress for the temporary authority to borrow as much as $500 billion from the US Treasury - up from the current $30 billion limit - in case the number of bank failures increases even more dramatically. If Congress approves the measure, to borrow more than $100 billion, the FDIC would still need permission from the Federal Reserve, the Treasury Department, and the White House.

As of Dec. 31, the FDIC had $18.9 billion in its insurance fund - down from $52.4 billion a year earlier - in addition to $22 billion that it has set aside for pending bank failures. The agency has projected it will need $65 billion to take over failed banks through 2013.

But if the FDIC suddenly had to take over a giant bank such as Citigroup or Bank of America, the fund would be drained "in a flash," said Cornelius Hurley, director of the Boston University law school's Morin Center for Banking and Financial Law.


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