FDIC's Bair: Insolvency A Possibility

Bloomberg:

March 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.

Read the whole story: Bloomberg

Comments

[PhilipTaylor]

I guess if you are NOT an Elite Bankster with "INSIDER INFORMATION” from the ELITE FED you are going to lose most of your Retirement!

FED is not owned by our Government! Federal Reserve is purposely named so People think it is a Federal Agency!

FED is owned by the "Secret Society of Elites and Elite Banks" that have been in England and Germany since Roman Times, often called “Money Changers” or Banksters by some of our best presidents including Jefferson, Lincoln, Jackson, and Kennedy.

FED has almost nothing to do with our Federal Government, but can print endless amounts of money and charge our government interest to increase our National DEBT!

The FED exists because of some "TRICKY" legislation that was passed in 1913, while a lot of Congressmen were on Holiday Break.

A small TARP clause gave FED the ability to PRINT AN INFINITE AMOUNT OF MONEY.

FED main goal is to making sure the WEALTHY STAY WEALTHY!

FED charges our government interest on all the money it prints, as it deems helpful to the WEALTHY!

FED's other duties include protecting the WEALTHY from their own mistakes by forcing the AMERICAN TAXPAYER to pay for those MISTAKES!

Many think Government is taking over Banks when in fact the ELITE BANKS/FED are TAKING OVER OUR GOVERNMENT!

SOLUTION: Place the FED under the Treasury and President to break “Control by the Wealthy!”

[CaptainHowdy]

http://www.counterpunch.org/pace02272009.html

"In 1948 George Kennan, one of the chief architects of post-war US foreign policy, famously stated the chief object of US policy in the post-war era: "We have about 50% of the world's wealth, but only 6.3% of its population."

"The 60s and 70s conditioned Americans to expect a standard of living which Kennen and the ruling class knew could not be maintained over the long haul. They understood that world military dominance could only hope to delay the inevitable time of reckoning."

"By the 1980s the chief concern of the ruling elite became making sure that when the reckoning finally came it would be working Americans – not the rich – who would bear the brunt of the adjustment. That required transferring wealth from working people to the rich in advance of the reckoning. This has been the main projects of the ruling class since the election of Ronald Regan."

[Wallysmom]

O.K. I am REALLY CONFUSED. Please tell me why the FDIC raised their insurance coverage to $250,000 if they can't cover the banks. They could have held it at $100,000 because, heck, most of us at .02% interest couldn't save that much in 7 lifetimes. P.S. Hey bavb63, could I get a loan from your Sealy Perfect Sleeper?

[Viper]

Because your bosses a/c even in most small businesses is often that much and more ..and you dont want a run on the banks as in 1930. I have five businesses and all accounts with more money than that and i dont want to spend my time worrying which bank is next to be going down, especially since the FDIC will not release the banks on its watch list in order to avoid a run on those banks. I can only divide up my bank balances into 3 a/cs in a single bank.. so it would mean I would have to have around 20 accounts if it had not been raised in 8 different banks on order to be protected. What a mess!

Adjusted for the devaluation of our currency over time... the 250K is equal to the 100K in 1990. It was really just adjusted for inflation over time.. in a single jump.. should have always been adjusted every 2 years.

You are right most people have much less money than that in a bank a/c... but the precentage of dollars in a bank made up by those large depositors are quite high.. if they pull out, the bank folds.

If a bank folds, and a business a/c is lost... guess whose outstanding p/r checks are not paid? Who does not have job next week?.

Banks will be charged a higher insurance premium. They will raise the cost of services to pay it..

Regards

[markinaz]

That mattress is looking better every day.

[Ray46]

Banks have become a bad risk through gross mismanagement and yet they don't think their FDIC insurance fees should go up as the FDIC payouts to banks skyrocket.

[Viper]

Yep they are sky rocketing because Americans took the money and cant pay for all they borrowed to buy products made in China.

regards

[themodernleader]

We are destroying our capacity to borrow as we feed each financial institution unaccountable billions for temporary propping up. Suddenly, we will witness the wholesale collapse of hundreds of banks. FDIC Chairman Sheila Bair spends the 30 billion line of credit of money provided by the Fed which is churned out of thin air. She still needs 600 billion more. She goes to Congress. They tell her the well is dry.
President Obama is shocked and dismayed. "Geithner never warned me about this disaster. He also nerver mentioned the need to bail out the pension funds that suddenly require hundreds of billions."
Chairman Bair composes a letter to the holders of bank accounts of the bankrupt banks: "We are honoring our guarantee of your account. The President has instructed me to reemburse your account .30 percent. The extraordinary times disallows our government from borrowing any more monies. This is all the money available. Warmest regards."

[Viper]

We destroyed are capacity to borrow when Americans borrowed more money than they could pay back and the banks were dumb enough to loan us the money and got stuck with our bad debts.

As bank assets are devalued by our defualts, legally they are required to loan less and charge higher fees...

Regards

[JaneaneTheAcerbicGoblin]

If the GOP had their way, they would abolish the FDIC, calling it socialism.

[Kurt Hausen]

This is over simplified, however since the banking crises has reached this point it would be better to spend tax payer money on back-stopping deposits than on keeping unproductive businesses operating. Warn depositors, then let the banks fail and then cover the deposits. Giving the Banks money to keep operating when they are unable to operate and have massive overheads seems like a loser.

[Bjarni]

And we find ourselves stuck in a situation that our money isn't 100% secure, people start withdrawing their money to be secure. That puts the bank's leverage higher than it should be. They are supposed to have 9 times higher number of loans than they have in deposits (10% reserve requirement) So if a bank has 1 mil deposited according to Law they could have 9 mil in loans outstanding. If a run on the bank occurs and 100k is withdrawn leaving 900k in deposits the bank needs to call in the loans or suspend lending to draw back their loans down from 9 mil to 8.1mil.

I think had the FDIC been suspended after 7 years as it was supposed too after the depression, people would have chosen less risky banks to deposit their money into. Currently I don't even think 1% of people who do business with a bank look at what their bank is doing. People spend more time selecting movies at blockbuster than choosing a bank. But that's just my thought. When people have no risk or don't have to pay for something they stop caring.

[KillTheMessenger]

The FDIC has nothing to do with fractional-reserve banking. If a customer withdraws 100k from an account, all the government has to do to keep the bank solvent is to put 100k back. There is no leverage there.

One can adjust the minimal deposit of a bank and the FDIC insurance limit independently and with different goals in mind.

How does a customer know what "a less risky bank" is? You won't get access to their balance sheet, and on average, even if you did, you couldn't make sense of it. That's a non-starter to begin with.

And that's why the government insures your money. The original mechanism was a bank funded insurance. Of course, as we all know from the story of the bailout, that is not what is going to happen. The Fed will, if push comes to shove, make the trillions of dollars that are on US bank accounts. They will not even limit it to $100k or $250k or anything if the unthinkable happens. And then the government will take over all the banks and move the saving accounts over to a fully covered government owned entity. The only people who will be wiped out are the shareholders. But they are pretty much down and out for many institutions already.

And why am I so sure of all of this? Because that is the one and only way to keep the world economy intact. There is no alternative.

[Viper]

You are not corr3edt. Thye are highly leveraged, not as much as Wallstreet had (20 to 1 before they became banks, but then that reduce money avaiable for loans by increasing reserve requirments) . When the bank's asset to loan ratio rises below the 8% level, then the bank goes to the FED window for a shortterm loan over night to cover that short fall/solvency problem.. goes on every day.. a bank makes its asset to liability test... and borrows to cover it, its why FED fund rates are important to banks... but its a short term solution... There is leveraging... a drop in one dollar in a banks assets, means 9 dollars in loans must becovered with new cash or a reduction in loans. A bank only keeps at had 8% of its depositors money in effect in the bank. If people pulled out 20 percent of their deposits... thats a bank with no cash to pay out ...

As banks asset drops.. it must call loans or get more cash reserves... The tarp funds are in many cases sitting at the FED as reserves, because the assets the banks hold keep dropping. Thus it does not mean a bank can make more loans, but does mean they have to call less loans. To raise cash , tocover their drop in casg, they have assets that are being traded at 10 cents on the dollar now.. our mortgages...


Regards

[Bjarni]

Think you need better comprehention skills.

I was not linking the FDIC to Fractional Reserve Banking.

But if I was there is a big link between the two. If it were not for Fractional Reserve Banking and the banks actually stored the money in their Vaults that people deposit, then what would be the reason to insure money that's already there and awailable?

I know it's hard to comprehend because you've been taught that the Government needs to babysit you and all business and you don't have to be responsible or understand the mechanics of how the world works.

[Barbara Ocock]

FDIC should cover the deposits and the banks can go to hell. Isn't that the way it was intended? It was always my understanding that if the bank failed, my deposit was covered. Not the solvency of speculative investments; my paltry life savings. In the end, which will cost us more; bailing out a fraudulent system, or bailing out the Middle Class? Let the house of cards fall; what we thought was too big to fail is failing no matter what we do. If the Government has to step in and straighten out our loans and mortgages, so be it. Nobody wants that. Nobody is comfortable with that. It must be done very very carefully. But it must be done. We have allowed personal greed to bring the greatest system of governance yet on earth to it's knees.

[Viper]

No the FDIC was created to keep runs on banks from happening which only hold 8% of your cash at hand and would thus fold... quickly... They loan the other money out so you can buy a car made in Japan or a house or your employer can buy equipment or build a plant.... charge them interest and pay its depositors some of that interest in return... in savings accounts or CDs.

The problem is not JUST with the banks, its with us not paying them back! But then that would mean we the people would have to accept part of the responsibilty for this mess thats a rsult of 30 years..

Regards

[Treasonous1]

Of course it is insolvent, as it has always been. The same goes for every bank in the world. They all have less than a quarter of the money that was deposited available for withdrawal. In teh US that is only a tenth, and that is if you do not make a term deposit in which case they do not need to even hold that much in reserve shoudl you want to witdraw your money. SO of course that as soon as a tenth of teh depositors, or better said when the depositers with a tenth of the money, want to withdraw their money there is none awailable for anyone else. This is teh real reason banks are not lending. It.s not the bad assests themselves, its that they fear that people will want to withdraw their money so they are not tied up with bad assets, and they need as much cash on hand so they don't have to tell somone, sorry we gave out all your $$ a long time ago... at which point the whole system colapses.

[KillTheMessenger]

When do all the people with savings withdraw all their money at the same time? Only on the day of a bank run. After which the bank is insolvent no matter how much money they store.

So what good would it do to keep all that cash sitting around? If that's what you want, you can simply rent a deposit box and put it in there. So could we all, if we didn't know better.

And, no, the system can not collapse. That's why they set up the Fed in the first place. The Fed can make all the money people will ever want to withdraw. And once the Fed makes it, the mint can print it.

Problem solved. Got any other questions how to "safeguard" your money?

[Treasonous1]

LOL to the fed just printing more money. Just ask zimbabwe how that worked out when they just keept printing more and more. And if you think the USD will retain its value just cause it is the US government that is doing the printing, again LOL. So sure all the money will be paid, and you can use it a toilet paper cause it will be worth less than a roll. In fact the only way the system has any shot at surving for a while longer is if people just keep chosing to belive that this ponzi scheme is really something else. And that is just what the fed and deposit guarantees are meant to do. Just Imagine how many more investors Ponzi would have gotten if rather than being arrested for what he did he had the governemnt gurantee to pay anyone that invested money with him. The thing with banks is that 90% of the wealth is concentrated in teh hands of 1% of teh people, so it is very easy to redistributed it around without someone asking for it, but as soon as just 10% of those do, then the system runs out of cash. All the safegurads set up are really just a way for all the Ponzies to get together and say that if ever one of us has to pay out to more "investors" than we have cash for, we will help eachother out untill more people to buy into the system.

[Chaucea]

"The FDIC spent 10% of its reserves to bail out IndyMac, and that was the first in a wave of failures," Roubini says. "Will we soon have to bail out the FDIC?"

Last year, Nouriel Roubini warned about the FDIC needing to recapitalize:

http://finance.yahoo.com/tech-ticker/article/56994/Top-Economist-Americans-Should-Worry-About-Bank-Deposits-if-Congress-Doesn%27t-Act

http://www.infiniteunknown.net/2008/07/20/fdic-will-run-out-of-money-says-roubini/

[TJCole]

Makes sense and well worth bailing out, without The FDIC everything could begin to unravel real bank runs and that's all we need...

[feitctaj]

I'm currently looking for investors to get into the armored mattress and armchair manufacturing business. Anybody wanna get in on the ground floor with me?

[KillTheMessenger]

Nah, I pass. Nobody can steal a number in a backed up computer database that represents my savings. But a lot of people could steal my mattress. It's just not a great way to safeguard money.

[beaupritchard]

I saw this coming when Paulson and Bernanke first approached Bair.

[jeanruss]

Bair was just on msnbc this past weekend having a gladfest. Now we hear this. The news contradicts itself on a daily basis. The CDS are WORTHLESS. That is the problem. Until they face it and solve it, there will be no recovery.

[Viper]

The CDS are your mortgage.. are you still making payments on it...? then they are not worthless.. just not easily tradeable now, because its a basket of good, the bad and the ugly...

If you tried to sell your 250K house in one hour you might get 50K in this makret.. is your house worth just 50K?

Regards