FDIC will go into the red for next four years

posted at 3:35 pm on September 29, 2009 by Ed Morrissey

If you thought that bank failures and bailouts had passed, the FDIC has an unpleasant wake-up call for you.  The depositor insurance corporation has now required banks to pay their fees in advance for the first time ever, and for good reason.  The FDIC estimates that bank failures will cost $100 billion and that they will have to run unprecedented deficits for the next four years:

Federal regulators expect bank failures to cost the deposit insurance fund about $100 billion in the next four years and the fund to be running at a deficit Wednesday.

That is higher than an earlier estimate of $70 billion in failure costs through 2013.

The Federal Deposit Insurance Corp. made the projections Tuesday as its board voted to propose requiring banks to prepay an estimated $45 billion in regular insurance premiums for 2010-2012. The proposal could take effect after a 30-day public comment period. …

Without additional special fees or increases in regular premiums, the insurance fund — at $10.4 billion at the end of June — will become “significantly negative” next year and could remain in deficit until 2013, the FDIC is now projecting.

We’ve been keeping an eye on the FDIC for a while, as it is an indicator of predicted strength in the banking sector.  This shows that the financial crisis has far from passed.  The government has prepared for failures on a scale that has not been seen in decades.  Even with this preparation, it appears that they will not be able to keep pace and will need steady infusions from the general fund to keep depositors secure enough to stop bank runs.

The “prepaid assessments” allow the FDIC to keep from choosing between two unpleasant options.  It has access to a $500 billion line of credit with the Treasury, but a personal conflict between Treasury Secretary Tim Geithner and FDIC chair Sheila Bair will keep her from tapping into it except in extremis.  The advance payments from member banks replaces a foolish idea floated last week that would have had the insurer-regulator borrowing money from the very banks it regulates, an absurd conflict of interest.

However, this is somewhat akin to getting advances on a salary.  Taking the money now means that the FDIC won’t collect these fees in later years.  It’s a big gamble that the crisis will not last long enough to keep the FDIC in crisis mode for long.  If banks continue to fail after next year, the FDIC and the federal government will be forced to float more and more depositors out of the general fund, which will increase our deficit spending and make our bonds less and less attractive.

It’s a grim assessment, and the best we can hope is that this is the worst-case scenario the FDIC faces.

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Where did all that money go ?

macncheez on September 29, 2009 at 3:37 PM

I see my bank account free checking, ATM and other “free” items will be not so free soon enough.

upinak on September 29, 2009 at 3:37 PM

Can’t we hire Dr. Evil to earn that money back for us?

Dr.Cwac.Cwac on September 29, 2009 at 3:38 PM

Welcome to Milo Minderbinder’s syndicate

shick on September 29, 2009 at 3:39 PM

Like the ACORN lady told you. Bury your money in a tin in the back yard and cover it over with grass.

Jeff from WI on September 29, 2009 at 3:39 PM

BUY GOLD NOW!!! DDX

Orange Doorhinge on September 29, 2009 at 3:41 PM

No reason NOT to introduce a trillion dollar health care reform boondoggle that will probably end up costing two trillion over the next 10 years.

After all, our ability to print money is unlimited. – Barack Obama

NoDonkey on September 29, 2009 at 3:41 PM

It’s a big gamble that the crisis will not last long enough to keep the FDIC in crisis mode for long.

Or, a gamble by Bair that Geithner won’t be there that long…

Federal regulators expect bank failures to cost the deposit insurance fund about $100 billion in the next four years …
… the insurance fund — at $10.4 billion at the end of June

Those two numbers were at opposite ends of the quote; I just wanted to see them closer together. Note that they need $100 billion (optimistically) and only have ten percent of that on hand.

Vashta.Nerada on September 29, 2009 at 3:41 PM

Ed, we don’t need to worry about the economy. We can blame that on Bush. We need to look at more important issues, like bringing the Olympics to Chicago. But most important of all, when will we finally stop focusing on all these little distractions and ram Obamacare through Congress?

Loxodonta on September 29, 2009 at 3:42 PM

Hey, yet another potential crisis that B.O. can ignore, while he concentrates on what he considers his Numero Uno Priority….getting the 2016 Olympic Games to Chicago so as to appease his One True Master, Mayor Richard “Lord Shortshanks” Daley!

pilamaye on September 29, 2009 at 3:44 PM

Whew. That was a close one.

LibTired on September 29, 2009 at 3:45 PM

This assessment is an absolute white wash

“The FDIC has 400 banks in its watch list, but further examination sees 2,256. That means at least 900 more banks will fail in this cycle. These banks are using mark-to-model, so there is really no knowing whether the failure figure during the cycle will be 3,200 or 4,200. On just 900 banks, which are certain to go under, the loss figure will be at least $300 billion. Incidentally top banking professionals have verified these figures. They say one of the biggest problems is that solvent banks, some of who received TARP funds, are refusing to accept failing banks no matter what federal guarantees. They tell us that they believe that once a solvent bank is loaded up with failing banks they will then be taken over by bigger banks.”

-Bob Chapman http://theinternationalforecaster.com/

The jig is up.

The Calibur on September 29, 2009 at 3:45 PM

The FDIC called my house yeaterday to see if I could borrow them $200.00

Jeff from WI on September 29, 2009 at 3:46 PM

yesterday

Jeff from WI on September 29, 2009 at 3:46 PM

Another bailout com`n,er or is it time for another
articulated feel good earth shattering mesmorizing
Hopey/Changey speech!!

canopfor on September 29, 2009 at 3:46 PM

The FDIC called my house yeaterday to see if I could borrow them $200.00

Jeff from WI on September 29, 2009 at 3:46 PM

Jeff from WI: What did you tell them?hehe:)

canopfor on September 29, 2009 at 3:48 PM

What will we say when the Fed needs a bailout?

Vashta.Nerada on September 29, 2009 at 3:49 PM

This should result in some great interest rates for savers the next four years. /sarc

WashJeff on September 29, 2009 at 3:49 PM

“This is terrific news my fellow Americans. I’ve never seen a more incredibly successful recovery in my lifetime.”

– JoJo Biden VP

fogw on September 29, 2009 at 3:50 PM

You gotta spend money to make money. Or some such crap.

Thank goodness I already locked in my interest rates on my savings for three years last week.

mjk on September 29, 2009 at 3:50 PM

The FDIC called my house yeaterday to see if I could borrow them $200.00

Jeff from WI on September 29, 2009 at 3:46 PM

Jeff from WI: What did you tell them?hehe:)

canopfor on September 29, 2009 at 3:48 PM

They could have it IF they promised to use Bill Clinton’s White House desk as collateral. (I know that desk MUST be well built. Look how big Bill & Monica were.)

Jeff from WI on September 29, 2009 at 3:54 PM

The First Bank of Mattress sounds like a better investment every passing day…

newton on September 29, 2009 at 3:56 PM

The pressure on the FDIC is largely due to the much higher protection levels which were a feature of the confidence building measures. The FDIC have stated that the 150% increase in cover from $1ook to $250k for individual deposits will be switched back to $100k in 2013.

lexhamfox on September 29, 2009 at 3:57 PM

The First Bank of Mattress sounds like a better investment every passing day…

newton on September 29, 2009 at 3:56 PM

My personal finance managers at ACORN suggest a safety deposit mason jar/coffee can.

ROCnPhilly on September 29, 2009 at 4:01 PM

[newton on September 29, 2009 at 3:56 PM]

My branch is refusing more deposits and I need to buy another branch.

Dusty on September 29, 2009 at 4:02 PM

The FDIC called my house yeaterday to see if I could borrow them $200.00

Jeff from WI on September 29, 2009 at 3:46 PM

Jeff from WI: What did you tell them?hehe:)

canopfor on September 29, 2009 at 3:48 PM
They could have it IF they promised to use Bill Clinton’s White House desk as collateral. (I know that desk MUST be well built. Look how big Bill & Monica were.)

Jeff from WI on September 29, 2009 at 3:54 PM

Jeff from WI:I was thinking,strap that desk on flat bed,
no pun intended,and steam wash it down,it`ll
be good to,ahem,go!!

canopfor on September 29, 2009 at 4:02 PM

Crap,for got the haha:)part!

canopfor on September 29, 2009 at 4:04 PM

Bank failures will cost $100 billion dollars.

I could run a few ACORN offices with that money.

faraway on September 29, 2009 at 4:04 PM

You know that whole CRA that forced banks to lend money to people who couldn’t pay it back social engineering thingy that caused the economic collapse in the first place….?

Well… it’s still in place and going strong!

Good thing we can print all the money we want, for a moment there, I was getting worried….. Whew!

Seven Percent Solution on September 29, 2009 at 4:05 PM

Seven Percent Solution on September 29, 2009 at 4:05 PM

Somebody please cut the head off this red herring!

The Calibur on September 29, 2009 at 4:09 PM

Welcome to Milo Minderbinder’s syndicate
shick on September 29, 2009 at 3:39 PM

Are you saying the we should all invest in chocolate covered COTTON?

Chainsaw56 on September 29, 2009 at 4:09 PM

Lets see. Without the FDIC, how would this work?
What would happen to a failing bank? Would it’s loan contracts be sold to the highest bidder, with the proceeds going to the account holders? Would that mean that each savings account would loose a fractional amount of its value?
Right now, small time account holders loose nothing, while the bigger accounts loose everything over a certain amount.
I can’t help but think the problem here is that we are doing this wrong, and FDR is why.

Count to 10 on September 29, 2009 at 4:09 PM

. . . and Obama spend on, and on, and on . . . and on. That is when he’s not screwing around wasting jet fuel and money in Europe.

rplat on September 29, 2009 at 4:10 PM

Well… it’s still in place and going strong!

Seven Percent Solution on September 29, 2009 at 4:05 PM

Seven Percent Solution: D*mmit,it never ends,ahem!!:)

canopfor on September 29, 2009 at 4:14 PM

So let’s see, we can’t make a run on ammo since supplies are only just now coming back.

Hopefully everyone has already stocked up on non-perishable foods and bottled water.

So maybe a run on gold?

Chainsaw56 on September 29, 2009 at 4:14 PM

Count to 10 on September 29, 2009 at 4:09 PM

Well you’ve got three choices:

1. Nationalize all banking activity

2. Insure all banking activity with tax dollars

3. Have banking completely unregulated.

In the third option, all it takes is one panic for pretty much all banks to collapse. Banks usually only keep around 7 to 10% reserves so they never have enough to cover the losses. They pretty much create money.

The Calibur on September 29, 2009 at 4:14 PM

The Calibur on September 29, 2009 at 4:14 PM

There is a whole lot of room between your 2 and 3 that you are ignoring.

Count to 10 on September 29, 2009 at 4:16 PM

Not for the feint of heart, here’s one of my must-read sources for the low-down on what’s happening in the financial world.

Repeat. Not for the feint of heart.

singer on September 29, 2009 at 4:19 PM

So maybe a run on gold?

Chainsaw56 on September 29, 2009 at 4:14 PM

That’s been happening for a while. There are even advertisements on TV that attempt to get gold and silver out of people on the cheep.

Count to 10 on September 29, 2009 at 4:19 PM

This ponzi scheme takes another turn on the shell game.

the_nile on September 29, 2009 at 4:19 PM

Are we beyond help at this point?

Where did the money go? Can someone explain at a 6th grade level? I get that loans we given to people who couldn’t pay them back but the sellers had to do something with the money or overpayment they got right?

CCRWM on September 29, 2009 at 4:19 PM

Can we fix this with an apology?

Tonus on September 29, 2009 at 4:19 PM

Where did the money go? Can someone explain at a 6th grade level? I get that loans we given to people who couldn’t pay them back but the sellers had to do something with the money or overpayment they got right?

CCRWM on September 29, 2009 at 4:19 PM

http://market-ticker.org/archives/1475-The-Mainstream-Fallacy-Machine.html

“The only thing that is complex is the web of lies put forward to cover up what is simple mathematical reality: You cannot expand credit at a rate faster than GDP forever without suffering a financial panic and collapse.

the_nile on September 29, 2009 at 4:20 PM

BUY GOLD NOW!!! DDX

Orange Doorhinge on September 29, 2009 at 3:41 PM

Read this first.

singer on September 29, 2009 at 4:21 PM

Where did the money go? Can someone explain at a 6th grade level? I get that loans we given to people who couldn’t pay them back but the sellers had to do something with the money or overpayment they got right?

CCRWM on September 29, 2009 at 4:19 PM

Its not so much “Where did the money go?” as “Where did it come from?” What you are seeing is the failure of objects that allowed people to advertise their net worth as higher than it really was. It comes in little trickles: a savings account interest rate or dividend that was higher than it should have been, expenses that appeared to be covered by profits, etc.
Basically, all (or most) of our banking accounts aren’t really worth their nominal value, and our insistence that they be redeemable as such is causing banks to fail. If depositors just took the hit, their wouldn’t be a problem, but if they can get out with the inflated nominal value, they will run the bank if they get a whiff of that happening.

Count to 10 on September 29, 2009 at 4:29 PM

the-Nile I just read the article from your previous link and got that… I’ll give the next link a try now…

CCRWM on September 29, 2009 at 4:29 PM

Hey the Chicago Olympics will pull us all out this thing. We just have to hang on until Dear Leader brings that home…/

d1carter on September 29, 2009 at 4:31 PM

That’s been happening for a while. There are even advertisements on TV that attempt to get gold and silver out of people on the cheep.
Count to 10 on September 29, 2009 at 4:19 PM

No doubt those advertisements are aimed at Obamabots.

Are there any other precious metals we can invest in?

Chainsaw56 on September 29, 2009 at 4:32 PM

Just wait until FHA really starts to collapse. They have guarenteed $1T of loans, now at 14% delinquency rate and the agency has a 50:1 reserve rate vs. Bear Stearns 33: when it COLLAPSED. See http://online.wsj.com/article/SB10001424052970204488304574428970233151130.html

And Barney Frank/Maxine Waters think the CRA has worked so well they want to put more funding and racial lending quotas into it.

It would appear the left-wing Democrats have found the key to bankrupt the country and nationalize anything left standing.

Harry Schell on September 29, 2009 at 4:34 PM

…fevah… more bailouts… etc.

Akzed on September 29, 2009 at 4:35 PM

No doubt those advertisements are aimed at Obamabots.

Are there any other precious metals we can invest in?

Chainsaw56 on September 29, 2009 at 4:32 PM

Funny you should mention that, considering the oddly tilted racial balance of the people in the adds…

Palladium is an interesting one (all of the cold-fusion experiments are done using it, as it has a unique ability to absorb Hydrogen into its crystal structure).

Count to 10 on September 29, 2009 at 4:35 PM

Without much fanfare from the “in my hip pocket” MSM, about 96 banks have been taken over by the Fed since the Socialist-In-Chief took command, and it’s predicted that number could DOUBLE before the 2010 elections. If you think it’s bad now, just wait a few more months. Unemployment will only drop because folks give up looking for work and run out of benefit weeks, thousands more will default on home loans and MANY more banks will go under. Some with and some without FDIC backing.

What’s truly amazing is the fool still has a 50% approval rating!!

GoldenEagle4444 on September 29, 2009 at 4:37 PM

No reason NOT to introduce a trillion dollar health care reform boondoggle that will probably end up costing two trillion over the next 10 years.

After all, our ability to print money is unlimited. – Barack Obama

NoDonkey on September 29, 2009 at 3:41 PM

Crazy Eddie is in charge now.

(people who’ve read The Mote in God’s Eye will understand.)

PackerBronco on September 29, 2009 at 4:38 PM

Let’s not worry about this “chump change” FDIC matter. The One has more important stuff to do – for example go to Denmark for Mayor Daley and the Rezko mob so that they can skim big time the Olympic millions flooding Chi-town. Now that’s important! Got to love those Dems!

Cinday Blackburn on September 29, 2009 at 4:39 PM

Well that was thoroughly depressing… Our stock portfolio is almost back to it’s July 08 worth but it’s on the verge of being completely wiped out soon?

CCRWM on September 29, 2009 at 4:42 PM

If you are wondering where all the money went, look at the banks who got the sweetheart deals by taking over the assets of so-called “failed banks”.

Big example: JDMorganChase.

unclesmrgol on September 29, 2009 at 4:51 PM

I’m wondering when I’ll see the sign of the times in a WalMart:

“In God We Trust. All others pay cash.”

Blacksmith on September 29, 2009 at 4:53 PM

JPMorganChase. Sorry.

unclesmrgol on September 29, 2009 at 4:56 PM

I got a notice from the credit union where I have my car loan that they had switched to private insurance because the FDIC jacked their rates up. I don’t have money there, fortunately, but it bodes well for no one that this is happening.

Who’s worried?

evergreen on September 29, 2009 at 5:04 PM

Just another example of ‘all those green shoots’ Joey Biden keeps talking about.

GarandFan on September 29, 2009 at 5:09 PM

The bailout needs a bailout.

rjoco1 on September 29, 2009 at 5:29 PM

Where did the money go? Can someone explain at a 6th grade level? I get that loans we given to people who couldn’t pay them back but the sellers had to do something with the money or overpayment they got right?

CCRWM on September 29, 2009 at 4:19 PM

Most of the money wasn’t ‘spent’ as such but was used to beef up the reserve pools for a range of institutions. That’s the main reason why you don’t have the inflationary pressures which would normally accompany large sums being properly spent in the economy.

lexhamfox on September 29, 2009 at 6:52 PM

The pressure on the FDIC is largely due to the much higher protection levels which were a feature of the confidence building measures. The FDIC have stated that the 150% increase in cover from $1ook to $250k for individual deposits will be switched back to $100k in 2013.

lexhamfox on September 29, 2009 at 3:57 PM

Actually, that’s just a piece of straw on an already-broken back. Most people wouldn’t lose anything if the rollback to $100K were to happen now because they don’t have more than $100K in a bank.

steveegg on September 29, 2009 at 9:53 PM

What are they doing with the money?

I actually know, first hand.

Georgian Bank was the 95th bank to fail this year. They have most of our development loans. Let’s say that I owed them 400k for a real estate development that is not going to happen.

They will use mark to market accounting to say the property is now worth 200k.

Guess who eats the difference?

The FDIC.

The funny thing about it is that they make it so attractive for the bank to default…they’re almost begging them not to try to work things out.

Dorvillian on September 29, 2009 at 10:30 PM

The funny thing about it is that they make it so attractive for the bank to default…they’re almost begging them not to try to work things out.

Dorvillian on September 29, 2009 at 10:30 PM

Depends on if they can foist the carcass on another sucka bank for marking its assets well below par (like <.10/$) Colonial ring any bells?

SkinnerVic on September 29, 2009 at 11:09 PM

In the third option, all it takes is one panic for pretty much all banks to collapse. Banks usually only keep around 7 to 10% reserves so they never have enough to cover the losses. They pretty much create money.

The Calibur on September 29, 2009 at 4:14 PM

You are misinformed if you believe the banks had this much captial and this little leverage. I urge everyone to go to:

http://market-ticker.org/

I am not a shill for his site and I am no longer in the financial services industry. I just think he best explains the fraud perpetrated against the taxpayers by the bankers and the government. Rather than TARP, we should have followed EXISTING LAWS regulating leverage and insolvency. All the TARP funds should have gone to the FDIC and banks should have been systematically shut down, AS EXISTING LAW REQUIRES.

Once the bad apples were composted, a better, stronger, banking system, with fewer theives would be the result.
We are just postponing this day with theft and wealth transfers from the taxpayers to the bankers.

riverrat10k on September 30, 2009 at 11:27 AM

Sorry for the kinda duplicate post for MarketTicker.
Glad to see so many Hot Air readers are knowledgeable about economics and our banking system. It is by far the biggest threat to freedom facing this country.

I had not read all the responses when I posted.

Have some gold, some cash, trade (not invest) in the stock market, some real estate (preferably with it’s own water supply), and according to Mark Levin, foreign currency denominated bonds.

Am looking into this last part. Not sure how to hold such a thing and what the tax implications are.

riverrat10k on September 30, 2009 at 11:37 AM