U.S. Fund for Bank Deposit Insurance Falls Into the Red

[SarahB]

Source: New York Times

The government-administered insurance fund that protects depositors fell $8.2 billion into the red for the first time since the fallout from the savings-and-loan crisis of the early 1990s as the pace of bank failures accelerated in the third quarter.

Bank customers, however, should remain confident that their deposits would be protected since the bulk of that negative balance reflects money the agency has set aside to cover future bank failures.

Federal Insurance Deposit Corporation officials warned in October that the deposit insurance fund had been depleted, but Tuesday’s third-quarter report card on the banking industry marked the first time that hard numbers had been released. Even amid early signs that the economy is recovering, the report suggested that the country’s 8,100 lenders remain in fragile condition.

In its state of the industry report, the F.D.I.C. reported that banks posted a $2.8 billion gain in the third quarter, after a $3.7 billion loss in the previous period. Meanwhile, the number of “problem banks” that run the biggest risk of collapse increased to 552, from 416 in the second quarter. Bad loans of virtually every stripe — credit cards, mortgages, small business and commercial real estate — continue to grow, albeit at a slower pace.

“The credit adversity we have been discussing for some time remains with us, and we expect it will be a couple of more quarters before we see a meaningful improvement in that trend,” Sheila C. Bair, the F.D.I.C. chairman, said. “I am optimistic that if we address these problems head on, we will see clear signs of improvement in bank earnings and lending in 2010.

Read more: http://www.nytimes.com/2009/11/25/business/economy/25fdic.html?_r=1&partner=rss&emc=rss

[rucky]

1. I guess they should've collected premiums when they had the chance.

http://www.boston.com/business/articles/2009/03/11/now_needy_fdic_collected_little_in_premiums/

Now the government has to bail itself out.

[FBaggins]

6. That would have caused problems at the time.

There would have been a public backlash at charging premiums against nonexistent claims.

The good news is that it isn't "the government bailing itself out" (at least in this case anyway). It's really a case of the "good" banks paying for the mistakes of the bad ones. So far, all of those dollars have been paid from existing premium balances that the banks paid in... and there has been a creative 'assessment' (accounted for as prepaying future year's premiums) that should refill their coffers for the time being.

The closest this will come to a government bailout (ignoring, of course, the fact that many of these banks are pseudo government-owned) is a loan from the treasury that would be paid back anyway. That remains a possibility, though a slim one at this point.

[Possumpoint]

9. Government Bail Bail Itself Out?

Got news for you, once again the taxpayers are called upon to bail out corporations. Our pockets fund and will fund this.

[rucky]

11. Yes, before it was private corporations needing emergency funds

now it's a govenment agency.

I had no idea my post would be so controversial.

[Demeter]

2. Our Long National Nightmare Continues

And at the rate Congress addresses these issues, it will never end.

[AllentownJake]

3. Funny I said this was going to happen last week and an angry cheerleader

I wonder if that poster has any sense to apologize.

[berni_mccoy]

4. What's that sound?...

It's the printing presses at the mints gearing up to print more money.

[Steerpike]

5. I think

This is funded by the banks themselves.

[katkat]

7. Steerpike is right

At least so far.

[AllentownJake]

8. Till it goes into the Red

Once the fund is exhausted, money needs to come from somewhere, and seeing the banks needed money last year and undercapitilized, it ain't coming from them this year.

[Devil_Fish]

14. your wrong. money comes from no where. it literally grows on trees.

if the Government needs more, it will simply buy the paper and ink and print more.

[FarCenter]

10. FDIC needs to borrow a few 10s of billions from Treasury and close about 500 banks

Waiting just makes the problem worse as crippled banks fall farther into the red.

[showpan]

12. it's just the first signs

of the beginning of the collapse, better prepare if you can.

[Devil_Fish]

13. who cares, they will just print more..... NT