Last week's seizure of BankUnited by regulators cost the FDIC's deposit insurance fund some $4.9 billion, making it the second most costly bank failure since the financial crisis began. How much longer can the agency absorb such losses?
Probably for quite some time. There was about $19 billion in the deposit insurance fund at the beginning of 2009 and subsequent bank failures have burned through about $10 billion of that. But there are at plenty of reasons to think the FDIC won't run out of money anytime soon.
Here are three key facts about the FDIC's finances:
1. The FDIC's insurance fund isn't paid for by taxpayers. At least not directly. The agency charges banks a fee based on the deposits they're holding and how risky they're deemed to be. Of course, if banks try to make up that money by paying less interest or charging higher fees, customers could end up picking up the tab in the end.
2. Those fees are going up. Faced with a dwindling balance in its insurance fund, the FDIC decided earlier this year to hit banks with a one-time charge of 20 cents for every $100 in deposits, to be collected in September. For a big bank like JPMorgan Chase (JPM), for example, which had about $722 billion in U.S. deposits at the end of last year, that would mean an extra $1.44 billion headed to the FDIC, assuming all those deposits are insured by the agency (which they're almost certainly not).
Thanks to Item No. 3, the FDIC decided to cut this charge significantly, to just 5 cents per $100 in deposits. That's good news for the banks, but potentially expensive for taxpayers. Daniel Indiviglio at The Atlantic calls it a "backdoor bailout."
3. If all else fails, the FDIC can always borrow billions from the Treasury Department. President Barack Obama signed a law last week that boosted the FDIC's line of credit with Treasury, which had been $30 billion, to $500 billion through next year and to $100 billion permanently.
What would the FDIC need $500 billion for? Well, that amount "begins to approximate the maximum loss from resolving the top four banks," Chris Whalen, managing director at Institutional Risk Analytics, a financial research and consulting firm, told CNN Money in March. ("Resolve" is the polite term for what regulators did to BankUnited last week.)
Obviously, the Treasury can literally print money. So the FDIC shouldn't run out anytime soon. But, as many Americans have learned this year about their personal finances, big debts can catch up with you.
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