Banks may lend money to FDIC
Filed under: Economy, Investing
In a reversal of fortunes, the FDIC may need to turn to healthy banks for money to help bail out the FDIC's insurance fund, which is running out of money as it tries to rescue all the failed banks, the New York Times reported Tuesday. Banks like this deal because they can lend money to the FDIC with government guarantees rather than pay additional fees to help prop up the deposit insurance fund.If the FDIC decides instead to ask for a special assessment, then all banks must pony up to replenish the insurance fund, even those in trouble. This loan solution may therefore be a better choice to help the shakiest banks. The FDIC has already tapped the banks for one special assessment this year.
The FDIC insures deposits at 8,195 banks and savings associations and promotes the safety and soundness of the financial system. All its funding comes from the insured institutions, not from taxpayers. But taxpayers could be on the hook if the FDIC runs out of money.
The rising number of bank failures over the last two years has drained the FDIC's insurance fund to just $10.4 billion to cover the potential losses on almost $5 trillion in FDIC insured deposits. Also, the number of banks on the FDIC Problem Bank List continues to grow. It grew to 416 financial institutions as of June 30, up from 305 as of the end of March. This is the largest number of problem banks since June 30, 1994 at the height of the savings and loan crisis.
The Treasury Department increased the FDIC's credit line from $100 billion to $500 billion earlier this year, but FDIC Chairman Sheila Bair wants to avoid going to Treasury Secretary Timothy Geithner for funds. She wants to solve the problem by working with the banks instead.
So far, 81 banks failed this year, 25 banks failed last year and two failed in 2007. Experts expect another 150 to 200 banks failures. To shore up its fund quickly, the FDIC can charge banks higher fees or it can borrow from the Treasury. This third option of borrowing from the banks was not under discussion publicly until this week. If the FDIC decides to announce a special assessment it must do so by Sept. 30 so banks can put the money aside for the next quarter. There isn't much time left to make a decision.
Banks already faced a special assessment in May as the FDIC charged them an emergency fee of 5 cents for every $100 of assets, excluding Tier 1 capital, to raise $11 billion in the second quarter. Obviously, the money raised from that special assessment is gone. In an interview with Bloomberg TV on August 5, FDIC Chairman Sheila Bair said there will likely be another assessment in the fourth quarter.
In the long term, the FDIC is expected to turn to foreign banks for help, as well as to private-equity funds. In August, the FDIC board voted 4 to 1 to actually reduce the cash that private-equity funds must maintain if they acquire a bank. Previously, private-equity funds had to maintain a capital reserves equal to 15 percent of a failed bank's assets. Under the new rules, they only must maintain 10 percent, but that's still higher than the 5 percent banks must maintain when they buy a failed bank.
The FDIC also decided it wanted to guard against private equity funds that might want to quickly buy and sell at a profit, so it added that a private-equity fund must maintain a bank's minimum capital levels for three years. John Bowman, acting director of the Office of Thrift Supervision voted 'no' because he thought the reserve policy was too strict and could deter investors.
Private-equity funds tend to buy distressed companies, slash their costs quickly and resell them a few years later. But the FDIC was forced to soften to their presence because it's running out of options. The Private Equity Council estimates that the 2,000 private-equity firms in the United States have around $450 billion to spend.
So now, with three options under consideration -- loans from banks, a special assessment from all banks, or loan from the Treasury Department -- which do you think Sheila Bair should pick?
Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.
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Reader Comments (Page 1 of 4)
9-22-2009 @ 9:42AM
RJ said...
This is crazy!!! The U.S. taxpayer helps bailout these predatory banks like JP Morgan Chase who on a daily basis screw their customers which are U.S.Taxpayers.
Now we are asking the same banks who still did not pay back TARP funds to replenish the FDIC who is failing!!!
This sounds like a Federally run PONZI scheme. No if and or buts the U.S. taxpayer is being told bend over and like it no matter what.
Reply
9-22-2009 @ 5:20PM
ANNE PEARIGEN said...
I TOTALLY AGREE WITH YOU THIS IS BS. WE SHOULD HAVE NEVER BAILED OUT ANYONE AND THAT INCLUDES GM AND CHRYSLER
9-22-2009 @ 9:45AM
M said...
As far as I am concerned. There are NO "healthy banks" as long as we have Obama in office.
Reply
9-22-2009 @ 12:47PM
mike said...
m you are an idiot.....this mess started on w's watch and many banks failed before president obama took office.
9-22-2009 @ 3:13PM
thec2u said...
m, GW the chimp handed this mess to Obama. You are stupid like GW, and you can't fix stupid.
9-22-2009 @ 4:40PM
huh? said...
m.... you are right on the money.
thec2you... check your facts, you even got who the 'chimp' is wrong.
take from the healthy and give to the sick, so all will be sick.... excellent program chimpbarry
10-01-2009 @ 3:39PM
steve said...
Actually, c2u, this started under Clinton. The policies that led to loans being granted to unqualified applicants was the Demorats doing. Yet, you are too stupid to do anything but drink the kool-aid.
9-22-2009 @ 9:56AM
john said...
KngAthr
8:04AM Sep 22 2009
what a TO BIG TO FAIL surcharge to fund extra money to FDIC? IF they are so big we have to bail them out, why not surcharge them to pay for the damages they(financial sector) did to us by making horrible decisions? This gives little and regional banks a break(since they are the ones undercapitalized and at most risk to commercial real estate loans) and still gets the FDIC money without taxpayers paying the interest on it. Just a thought...
Reply
9-22-2009 @ 10:06AM
Paul said...
That's crazy. Yet another Democrat run Govt. screw-up
Reply
9-22-2009 @ 10:07AM
Ernest said...
Welcome to America 3rd World US OF A.
Reply
9-22-2009 @ 10:14AM
mike said...
It amazes me that people keep investing in the stock market. The country has gone mad. There is nothing out there that show any stabilitity and yet the markets are up 40% since March. It appears wall Street is about to rob the world again but there will be no more money to prop up the banks this time.
Enjoy Hell Bankers and Wall Street
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9-22-2009 @ 10:17AM
luette said...
This congress, senate and the whole government, were given Medi Care to run---its corrupt-Social Security-squandered, DEPT is like a wild spending woman with your credit card, and they cant even pass a credit card OR car idea that doesnt fall apart.....But we STILL have them in office??? ARE YOU KIDDING-if these people were employed at your business you would have gone bankrupt.
They dont need another PROGRAM TO RUN, they need to be thrown out.
Reply
9-22-2009 @ 1:17PM
ezylvn said...
this has nothing to do we dems or reps u pin heads this has to do with stripping weath from america by all these con artists and the devaluation of our dollar f**kn toilet paper...read some history on rome see how we are getting CLIPPED ....empires fall ....we need a true AMERICAN in office... O and by the way watch for the yuan to be backed by gold and take over and all the phony paper will be back in the USA and nothing of real value will remain on our dirt... i love my country but we are way off course with all these clowns running the circus...even ringling bros knows not to put the clowns in charge!
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9-22-2009 @ 11:07AM
Rick said...
The FDIC to ask bankrupted banks to bail out other bankrupted banks? This makes no sense at all.
Reply
9-22-2009 @ 1:15PM
DaveC said...
The game was set up so that the FDIC was an insurance company for bank failures. Leave it that way. Take more premiums from the banks. It is time that they all learn to be responsible.
Reply
9-22-2009 @ 11:16AM
jack said...
Now the FDIC is asking for money? Sure the "To big to Fail" banks will give them a loan, at a reduced interest. This
is Government at it's finest.
It's now time to start hoarding food, ammo, water and gold. Cash is useless, thanks to the Government. All Government
will do is bring us more into debt.
When the revolution starts, hide or fight.
A little history, when people are taxed into starvation, the rebel. We will fight, to regain our country, and push out the Washington elite. This is not a Republican or Democrat issue, it's a United States or New World Order issue. I am an Isolationist, and think we should rebuild our economy, not Kneel to the NWO crowd.
Pull all our troops back into the US, and watch the world fall apart. Work on our Economy, put our people back to work. Deport all illegals, and arrest all Lobbiests.
WE THE PEOPLE, WHO SUPPORT "OF THE PEOPLE,
BY THE PEOPLE, FOR THE PEOPLE"!!!!!!!!
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9-22-2009 @ 12:44PM
Nikita said...
Amen. You have stated this very well. Socialism, by definition, is government control and regulation of productivity and profits. In order for the new world order to prevail, the globalist's must eliminate personal assets and wealth of the middle class and we, the people, have no other option but to feed foreign interests. Support America, buy only American products, if any, and turn off the globalist media.
9-22-2009 @ 11:17AM
Dean said...
Never let a a Dumb-Ass-A-Crat anywhere near taxpayer money. They will ALWAYS squander it in the name of trying to help and it ALWAYS hurts in the long run.
Reply
9-22-2009 @ 11:27AM
Joe Roy said...
Oil is rebounding, Watch the DOW drop!
Reply
9-22-2009 @ 11:30AM
fpeirce said...
I can't wait until the Obama-ites get their hands on health care! Will my heart surgeon be asking me to hold the flashlight while he carves into my chest, since my new govt. run health care insurance won't have the money to pay the light bill?
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