Agency that insures bank deposits may need helpUS: Hammered by bank failures, FDIC may need to draw cash from banks or government
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NEW YORK (AP) -- The government agency that guarantees Americans won't lose their 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. On Thursday, 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. |
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Small and midsize banks across the U.S. have been hurt by rising loan defaults in the recession. 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. And it still has billions in loss reserves apart from the insurance fund. On Thursday, Bair will also update the number of banks on the FDIC's list of troubled institutions. That number shot up to 305 in the first quarter -- the highest since 1994 and up from 252 late last year. |
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FDIC's Insurance Fund At $10.4BThe Federal Deposit Insurance Corp.'s fund that protects more than $4.5 trillion in U.S. bank deposits fell to just $10.4 billion at the end of June, as the banking industry continues to struggle with souring loans and regulators brace for pain in trying to clean up the mess. |
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The level of the FDIC's fund, the lowest since the savings and loan crisis, almost guarantees that the government will have to hit the banking industry with another special fee to recapitalize its reserves. Officials could also consider borrowing up to $100 billion from the Treasury Department, but government officials have avoided this option so far. |
| "The FDIC was created specifically for times such as these," FDIC Chairman Sheila Bair said. "No matter how challenging the environment, the FDIC has ample resources to continue protecting depositors, as we have for the last 75 years." The deposit insurance fund topped $45.2 billion a year ago. | |
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The agency said it had 416 banks on its "problem" list at the end of the second quarter, up from 305 at the end of March. Banks on the problem list are considered a higher risk of failure and face tougher regulatory scrutiny. The FDIC said the total assets of banks on the problem list was $299.8 billion, which suggests that Citigroup Inc. (C) and some of the country's other largest banks, remained off the list. |
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FDIC May Tap Treasury Credit LineFederal Deposit Insurance Corp. Chairman Sheila Bair said her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so. |
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"We are carefully considering all options' including
borrowing from the Treasury, Bair said after a speech in Washington. Bair has already warned banks that they may face an assessment hike to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said. |
| Bair appeared cautious about resorting to the Treasury credit line, saying there are different views on when it should be used. She said some believe it should be reserved for emergencies only, rather than for covering losses that are already known. | |
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FDIC Seeks To Raise $45BWednesday September 30, 2009The Federal Deposit Insurance Corp., faced with a deposit insurance fund expected to be in the red by the end of Wednesday, moved Tuesday to raise $45 billion by having U.S. banks prepay their premiums for three years. FDIC staff are proposing a multi-stepped program that will require banks to prepay their assessments for 2010 through 2012 when they pay their fourth-quarter premiums at the end of 2009. Additionally, banks will face a 3-basis point increase in their premium rates beginning in 2011. |
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The radical move comes as the condition of the U.S. banking industry continues to deteriorate. Officials said the number of problem banks and assets has "increased rather significantly" in recent months, increasing the FDIC's estimated cost of bank failures to $100 billion from $70 billion from 2009 through 2013. "Asset quality problems among insured institutions are not expected to abate in the near-term," the staff said. |
