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Could this be another boondogle?

by Kay King
5 replies
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Two more banks in the midWest failed this weekend - but we're told it's not a big problem because the funds are FDIC insured.

Am I the only one wondering where all the FDIC money is going to come from as these banks fail?

I know the premise is that the insurance is paid for by the banks that are insured....but from what I've read the large number of bank buyouts and mergers have resulted in less money paid into FDIC. It's complicated and I haven't done more than just read about it enough to know I probably don't "get it".

What insurer is it that covers the accounts in failed banks? Does it track back to AIG?

The Potential Funding Shortfall at the FDIC - Seeking Alpha

That article seems to assume that the Treasury of the US will pick up where FDIC insurance runs out - just how much debt can we create before the system totally crashes?

Am I missing something? Is it possible to keep reassuring the public that "the funds are covered by FDIC if the banks fail"? Who provides this huge amount of protection - and do they have the money to pay these accounts without raiding the Treasury again?

kay
  • Profile picture of the author Michael Oksa
    It's not possible when the government decides to raise the insured amount by two-and-a-half times. I learned that FDIC covers accounts up to $100,000 - I learned that in high shcool, well before I ever had a bank account.

    Once an account reaches $100k then you have to open another account to keep that extra amount insured. Simple, and each depositor should be aware of that. But, the government raised the amount insured to $250k.

    Here's my question...

    Why can't people be allowed to be responsible anymore? Wall street gets bailed, mortgage holders get bailed out, people who don't know enough to open anohter account get bailed out, etc. I haven't made a single one of those mistakes - so why should I have to pay for someone else's bad decision?

    Sorry if it sounds like I'm highjacking your thread Kay, that's not my intent. I answered your question (based on my understanding) and then took it a step further.

    There are a lot of people who are fed up with the way things are going, it's not any specific politician's fault, it's all of them.

    ~Michael
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  • Profile picture of the author Indiana
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    • Profile picture of the author myob
      Kay,

      It is not a problem any longer. US taxpayers have it covered. Besides, you should invest some of your money in the stock market.
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  • Profile picture of the author Thomas Wilkinson
    Just because a bank gets taken over doesn't mean its
    flat out of money. It does mean that they are below
    reserve requirements. The stockholders are the first
    ones to lose, not the depositers or the fed.

    T.W.
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  • Profile picture of the author EricJ
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    • Profile picture of the author Kay King
      T.W. -

      But aren't the reserve requirements less than the total deposited in the bank?

      The trend toward mergers and acquisitions of banks in the past few years have reduced the number of banks. I could be wrong but I believe 3 separate banks paying FDIC insurance would pay more than one bank - even if that bank is larger. I could be totally off base there - but seem to remember reading that some time ago.

      Guess I need to read some more as I don't understand exactly where all the money comes from that the FDIC has to insure these accounts.

      kay
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  • Profile picture of the author Thomas Wilkinson
    The reserve requirements are only about 8% of deposits but other
    factors enter in. Its very complex. EVEN bank auditors often disagree
    on the rules.

    You are right on about one bank paying less than three but that
    isn't the whole story. Our banking system is a hodepodge mess.
    We do not need thousands of banks in this country. On the surface
    having many fewer banks would seem to be anticompetitive but
    it is much easier to oversee (remember when we actually did that?)
    and many times more efficient.

    FDIC insurance sort of comes from premiums but its backed by the
    Federal Reserve. NO ONE has ever lost any money from deposits
    at an FDIC insured bank.
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