Sep. 19, 2009: The Costs of Bank Failures
Yesterday, the FDIC closed two more bank, bringing the total for 2009 to 94, and surpassing every year since 1991, which was the tail-end of the last major banking crisis. More than 2,000 banks and thrifts were closed during that crisis. How many will fail during the present crisis? No one knows, but the number is unlikely to rise anywhere near 2,000.
Even so, the costs of bank failures this time around have been larger, as the FDIC has been forced to tackle several large banks that imposed losses of more than $1 billion on the Deposit Insurance Fund ("DIF"), which replaced the Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF") a year ago. At the end of the second quarter, the DIF reserves stood at only $10.4 billion, far below the statutory requirement, which is 1% of the more than $4 trillion in insured deposits, or more than $40 billion.
Are your funds safe? Well, that depends . . . .
Most likely they are, so long as you have less than $250,000 in any one account at one bank. This amount was raised from $100,000 last year during the financial crisis.
So, for most of us, this issue doesn't affect us directly. Indirectly, however, it affects us all.
The FDIC has a $500 billion line of credit with the U.S. Treasury (read U.S. taxpayer), and is almost certainly going to have to access that line of credit later this year. This borrowing potentially puts us taxpayers on the hook for bailing out the banking industry yet again, over and above the TARP funds appropriated last year.
(See yesterday's blog for information on yet another back-door bailout of the banking industry.)
