Fun and Games at the FDIC

Time: On Tuesday, the cash-depleted FDIC hatched a plan to require banks to prepay three years of quarterly fees. The FDIC expects to quickly generate $45 billion in cash, an amount it normally would’ve had to wait years to get its hands on. But in a quirk of accounting rules, the banks won’t have to expense the upfront payments this year, even though they will be handing over the cash in the next few months — in amounts that could run into the billions of dollars for some banks. The FDIC says the move will solve its liquidity problems — the FDIC officially slid into the red this week for the first time since 1991. But it’s not certain whether the plan will boost confidence in the banking system, as the FDIC seems to hope.

For months it had been clear that the FDIC, which maintains a fund to protect deposits when banks fail, would soon run out of money. By the FDIC’s own revised estimate, the credit crisis, which has already claimed 95 banks this year, will cost the agency $100 billion. Half of that has already been spent. It’s the other half the FDIC is having problems coming up with. As of the end of June, the FDIC had about $10 billion left in its insurance fund. That has put the FDIC in a tough spot. When a bank fails, it is up to the FDIC to guarantee that you’ll get back the money (at least up to $250,000) you had in your checking account or savings account or certificate of deposit. If the FDIC fund ran dry, some worry that bank customers would run from all but the most secure banks, causing more bank failures and reigniting the financial crisis.

My comment: To clarify, the government entity that guarantees your deposits in your local bank is out of money. They are going to make the banks prepay three years of insurance premiums and not make the banks recognize this payment on their balance sheets. Isn’t this just more chicanery? If more banks fail, which I expect, where will they get more money to "insure" my deposits? Will the FED just print some green ink on a piece of paper and then give them to me? This scheme is supposed to instill confidence in the banking system? Sorry I think I will hold my savings in precious metals. This is not going to end very well.