12 March 2009

95% of Banks Avoided FDIC Payments

The FDIC (Federal Deposit Insurance Corporation), the federal body that guarantees citizens' bank deposits--might be needing a bailout of its own. Why? Well, the FDIC requires Congressional permission to collect insurance premiums from Congress. And Congress failed to grant such permission from 1996 until 2006, because,
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 (Boston Globe).
Even though the FDIC had "r[u]n short of funds" during the Savings and Loan crisis just a few years earlier, in 1996 Congress was so optimistic, and so convinced of banks' strength, that 95% of banks did not pay their premiums to the FDIC for a full decade. The FDIC's funds now sit "at its lowest level for 25 years" (Dallas Morning News). Consequently, not only must we bail out the banks themselves, but we must bail out the depositors' safety net.

(this here's a "post and run"--to be revised, but you can read more on this matter at Balloon Juice and Eschaton)

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