FDIC Needs $500B in Preparation for More Failuresby Tim Manni
As the Federal Deposit Insurance Corporation (FDIC) prepares for additional bank failures, chairwoman Sheila Bair has asked Congress for more money. Bair says the FDIC needs $500 billion because the corporation hadn’t collected insurance premiums for 10 years. The blame doesn’t exactly fall entirely on the shoulders of the FDIC:
The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.
Talk About Increases
The FDIC has proposed collecting up to $27 billion in insurance premiums this year from the banks they insure, up from only $3 billion last year. Banks warn that now isn’t the best time to put an additional strain on their capital. If imposed the higher premiums would likely trickle down to consumers which could increase their costs.
The FDIC’s request for $500 billion far exceeds their current limit of $30 billion they hold with the Treasury. While 25 banks failed in 2008, the FDIC has taken over 17 so far this year (and it’s only March).
Obeying the Warning Signs
As a Treasury official, Bair said she testified in 2001 that the FDIC should be collecting insurance premiums. Bair claims that five good banking years were wasted which could have been spent preparing the fund. Yet not all experts are blaming lawmakers:
But James Chessen, chief economist of the American Bankers Association, said that it made sense at the time to stop collecting most premiums because “the fund became so large that interest income on the fund was covering the premiums for almost a decade.” There were relatively few bank failures and no projection of the current economic collapse, he said.