Wednesday, September 30, 2009

The FDIC, Hat in Hand

The Dow slipped backward a bit on Tuesday after the big gains we saw on Monday, but that was hardly Tuesday's most discouraging news. Of more long-term consequence is the fact that the Federal Deposit Insurance Corporation is asking member banks to kick in $45 billion by the end of the year, to cover losses from bank failures that are now projected to reach $100 billion over the next four years.

Bank of America could have to pay $3.5 billion, JPMorgan Chase as much as $2.4 billion, but the hits the banks are taking are the least of our worries. More problematic is the signal that the banking crisis is far from over, with more than 400 banks remaining on the FDIC's problem-child list. Ninety-five banks have already failed so far in 2009, and the problem figures to extend to at least 2013.

The punchline to all this is that for ten years, from 1996 to 2006, the FDIC collected no premiums at all from its member banks. None! Who would have ever guessed, in those heady days of the late 1990s, that American banks would start failing again? Certainly not the FDIC, which could be flush with funds right now if it had bothered to collect the premiums it was owed all along. And those member banks could have chipped in a few billion when they could have afforded to do so, rather than during the current tough times.

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