Banks to Rescue FDIC

The Federal Deposit Insurance Corporation (FDIC), which insures bank deposits since 1933, including certificate of deposit accounts and savings accounts will be broke by this week if additional funds are not provided.

The insurance fund that has been depleted by 95 bank failures this year will be replenished by insured institutions by having them prepay their estimated “quarterly risk-based assessments” for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. In short, banks are prepaying their insurance fees until the end of 2012.

The FDIC estimates that the total prepaid assessments collected would be approximately $45 billion which will be enough to replenish the insurance fund.

How about future bank failures? If the FDIC collects the next three year’s of assessments now what will it do for money in the future? The economy is turning around this quarter but there are dozens of banks that are still in dire straits, see the Texas Ratio Bank List. If the economy turns sour again or GDP growth is slower than expected, the list will grow - will $45 billion be enough?

The FDIC Board also voted for a three-basis point increase in assessment rates that will take effect on January 1, 2011 for seven to eight years. The special assessment will help the fund.

The FDIC also has the ability to borrow $100 billion from the Treasury right away and up to $500 billion with the Treasury Secretary and the Federal Reserve’s approval.