FDIC Fund a “Myth”

RTT News
July 20, 2008

The FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits, FDIC Chairman Sheila Bair said Friday.

However, that fund is “a myth,” according to longtime banking consultant Bert Ely, and consumers may end up paying the price of what is expected to be a growing wave of bank failures.
NYU Economics Professor Nouriel Roubini predicts that Congress will have to intervene in order to bail out the deposit fund.

“They’re going to run out of money, with certainty,” he predicted. “Congress is going to have to recapitalize the FDIC, those $50 billion plus is not going to be enough, by no means.”

Indeed, on Friday afternoon FDIC Chairman Sheila Bair said in an interview on C-SPAN television that banks holding brokered deposits may be charged higher premiums in order to bring back the reserve to an acceptable size.

“I think that is something we need to factor into our premiums and charge higher premiums to banks that fit that profile,” she said in the interview, noting that the IndyMac failure was a big factor in the need for additional funds in the deposit insurance fund.

This means higher premiums for FDIC insured banks, analyst Ely noted, further complicating an already tenuous situation for the U.S. banking system. Banks will most likely pass the increased costs onto their customers, he said.

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This article was posted: Sunday, July 20, 2008 at 9:51 am

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