Monday, April 13, 2009

FDIC is funded by banks

Putting aside the nauseating condescension and Montagne's childish lead-in, there was something weird about the way Planet Money's Chana Joffe-Walt started her story on Friday's ME:
"One quick thing to clear up and then we can get to this weird banking drama that's playing out right now. Banking drama. You know you want to know. Okay, here's the one thing, the FDIC, the agency that insures our bank deposits...it's funded by banks. Maybe it's a name problem, the "Federal Deposit Insurance Corporation," but lots of people seem to think it's funded by taxpayers. It's not. Every bank that's FDIC-insured has to pay a fee for that insurance, and all those fees put them all together, they go into a deposit insurance fund that pays for bank failures.

"John Bovenzi is the chief operating officer of the FDIC. 'If you put a hundred dollars in a checking account in a bank, what the bank has to do is pay the FDIC an insurance premium.'

"Just like you pay a fee to get your car insured, the banks pay a fee to get their deposits insured. Now that we've cleared that up...banking drama."
To her credit, Joffe-Walt did point out that the banks will pay those premiums by increasing the fees you and I pay on our bank accounts. Also, she did mention that while the FDIC is funded by fees from banks, it also has asked Congress for an increased line of credit of up to $500 billion of U.S. Treasury funds (otherwise known as taxpayer money).

However, she failed to mention that the S&L crisis of the 1980s and 90s ended up costing U.S. taxpayers approximately $124 billion dollars, much of it through increased fees on our bank accounts, but also in large part through federal bailouts of federally insured deposits.

In the current financial crisis, with Citibank alone carrying over a trillion dollars in liabilities, it seems pretty clear that a single failed mega-bank would force the FDIC to call on its credit with the U.S. Treasury. Considering that the FDIC had only about 19 billion in funds by the end of 2008, and is expected to collect only about 12-13 billion in FDIC premiums this year, it seems far from certain that the FDIC would ever be able to pay back $500 billion in federal loans.

Much more likely, despite the assurances made by Joffe-Walt or by FDIC's Bovenzi (whose incentive to downplay this nasty possibility is glaring), such a "loan" would end as yet another gigantic bailout to the banks.

13 comments:

chunksmediocrites said...

Did she also mention that the FDIC collected no premiums from banks from '96 to 2006, because gosh there was nothing to worry about, and the FDIC was given no authority to impose fees until 2006 by congress?
http://www.boston.com/news/nation/washington/articles/2009/03/11/now_needy_fdic_collected_little_in_premiums/?page=full?ref=fp1

Woody (Tokin Librul/Rogue Scholar/ Helluvafella!) said...

In the current financial crisis, with Citibank alone carrying over a trillion dollars in liabilities,

is the whole trillion made up of 'covered' liabilities?

FDIC insures individual account holders to $200K, iirc.

At the max, @$200k/depositor, they'ry' have to be claiming 4 MILLION insured depositors (if i did the math right; my little caluclator can't do 'trillions').

Or, do these feculent crooks at Ctit ans elsewhere plan to use insured deposits to make their uninsured depositors 'well?'

Woody (Tokin Librul/Rogue Scholar/ Helluvafella!) said...

chunksmediocrites said...

Did she also mention that the FDIC collected no premiums from banks from '96 to 2006...?


short answer: Nope...

Anonymous said...

Though FDIC is managing part of the program, it is not even clear that the money will be coming from them.

in fact, that appears NOT to be th case:

"Although the details of the F.D.I.C. part were still being completed on Friday, it is expected that the government will provide the overwhelming bulk of the money — possibly more than 95 percent — through loans or direct investments of taxpayer money." -- NY Times
http://www.nytimes.com/2009/03/21/business/21bank.html


Besides, even if the money DID come from FDIC, FDIC effectively has a limitless supply of money from the Federal government because the latter will simply NOT let borrowers lose their "Federally Insured" deposits.


The people on Planet Money almost certainly are either very stupid, or, if aware these things, very dishonest.

That a point was made of the fact that the FDIC funds insurance through fees paid by banks DEMONSTRATES that the person reporting this is making a conscious effort to make the listener believe a certain thing: that the FDIC is essentially independent in its funding from the Federal government.

make no mistake: Withholding highly relevant information like the fact that FDIC is backed up by the Federal government basically amounts to a LIE.

"News" organizations like NPR seem to believe that they can pick and choose which information to reveal and which NOT to reveal to the public and which stories to cover and which not to cover and that "it's all on the up and up."

It's not. Not even close.

I had to laugh at what the head of FDIC (Blair) said recently:

I can't find the article, but essentially, she claimed that there would be no loss because FDIC accountants have "assured as much".

Anonymous said...

Dodd and others who get campaign contributions from banks already have their backs covered....

Plan to raise the FDIC limit.

Guys like Dodd (my Senator) should be booted right out of th Senate.

The guy is disgusting.

Even though I almost always vote Democratic, I will vote for the Republican next time just so Dodd does not go back to the Senate.


/////////
"Bill would raise credit limit for FDIC to cover deposits"

By Erika Bolstad | McClatchy Newspapers
http://www.mcclatchydc.com/231/story/63615.html
WASHINGTON — As a buffer against systemic bank failures, the Federal Deposit Insurance Corp. is seeking to increase the amount of money it can borrow from the Treasury to compensate customers with deposits in banks that go under.

The legislation, sponsored by Sens. Mike Crapo, R-Idaho and Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, would permanently increase the existing line of credit from $30 billion to $100 billion. It also would allow the FDIC to temporarily access up to $500 billion in loans from the U.S. Treasury through the end of 2010.

Anonymous said...

Goldman Sachs not only received $10 billion in direct bailout money but also nearly $13 billion indirectly from bailout money "funneled" through AIG.

Isn't it interesting that Goldman Sachs is now posting a HUGE 1st quarter 2009 profit? ($12 billion) so soon after getting paid that $13 billion from AIG?

Last quarter, Goldman sachs actually LOST 2 billion, its first loss since becoming a public company in 1999.

So, they went from a quarterly loss of $2 billion to a quarterly profit of $12 billion in just a few short months.

That infusion of $13 billion funneled through AIG could not have had anything to do with it, now could it?

Incidentally, without the taxpayer funded bailout of AIG, Goldman Sachs would almost certainly have had to write that $13 billion off as a loss. As it now stands, they have lost nothing on their bad investments since AIG paid them back 100 cents on every dollar.

Not a bad deal. It's called "no loss -- zero risk -- betting."

Goldman Sachs now wants to "buy out" of the TARP (bailout) program.

Do you suppose they will ALSO pay back the $13 billion of tax funds they got indirectly through AIG?

Fat chance.

gopol said...

Wow, I learned more about what's up with the FDIC reading these well sourced posts than anywhere else. Thanks. And thanks to NPR for the stimulus...heh

Anonymous said...

Correction to comment just above: $12 (11.88) billion is first quarter earnings for Goldman sachs, not profits.

Profits were $1.66 billion, still very large.

Hubertg said...

My god!!.. I'm collecting pages of documents Re: All the financial 'mistakes' of Wall Street, overlooked by Congress, well planned in advance by all of 'em to pull off this whole giant world wide ponzi scheme of our current crisis criminal ripoff corrupt finance govenment thing.
They are all organized crime dude gangsters...WTF ??

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