FDIC might sink into red by end of year!
NEW YORK (PNN) - August 27, 2009 - The government agency that guarantees you won't lose your money in a bank failure may need a lifeline of its own.
The coffers of the Federal Deposit Insurance Corp. have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.
That has happened only once before - during the savings-and-loan crisis of the early 1990s, when the FDIC was forced to borrow $15 billion from the Treasury and repay it later with interest.
Today, the agency reveals how much is left in its reserves. FDIC Chairman Sheila Bair may also use the quarterly briefing to say how the agency plans to shore up its accounts.
Small and midsize banks across the country have been hurt by rising loan defaults in the Depression. When they fail, the FDIC is responsible for making sure depositors don't lose a cent.
It has two options to replenish its insurance fund in the short run: It can charge banks higher fees or it can take the more radical step of borrowing from the U.S. Treasury.
None of this means bank customers have anything to worry about. The FDIC is fully backed by the government, which means depositors' accounts are guaranteed up to $250,000 per account (NOT TRUE - see below); and it still has billions in loss reserves apart from the insurance fund.
Ed. Note: According to the FDIC, if a bank fails, the insured amount applies to each depositor, not each account. If a depositor has several accounts a bank that fails, the depositor will only receive up to $250,000 aggregate for all accounts held in that bank!
The coffers of the Federal Deposit Insurance Corp. have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.
That has happened only once before - during the savings-and-loan crisis of the early 1990s, when the FDIC was forced to borrow $15 billion from the Treasury and repay it later with interest.
Today, the agency reveals how much is left in its reserves. FDIC Chairman Sheila Bair may also use the quarterly briefing to say how the agency plans to shore up its accounts.
Small and midsize banks across the country have been hurt by rising loan defaults in the Depression. When they fail, the FDIC is responsible for making sure depositors don't lose a cent.
It has two options to replenish its insurance fund in the short run: It can charge banks higher fees or it can take the more radical step of borrowing from the U.S. Treasury.
None of this means bank customers have anything to worry about. The FDIC is fully backed by the government, which means depositors' accounts are guaranteed up to $250,000 per account (NOT TRUE - see below); and it still has billions in loss reserves apart from the insurance fund.
Ed. Note: According to the FDIC, if a bank fails, the insured amount applies to each depositor, not each account. If a depositor has several accounts a bank that fails, the depositor will only receive up to $250,000 aggregate for all accounts held in that bank!
