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As we all know, the Federal Deposit Insurance Corporation (FDIC) guarantees depositors that they’ll get their money back if a bank fails, at least up to a certain amount. To fund its operations, the FDIC collects small fees from the banks that are held in reserve for the purpose of taking over troubled banks and paying off depositors.
Since the Great Depression, a period marked by widespread runs on banks, the FDIC has done a good job of fulfilling its mandate. So how are they doing in this crisis?
In a nutshell, they are in trouble.
The FDIC insures 8,246 institutions, with $13.5 trillion in assets. Not all of them are going bankrupt, of course. Yet as of late July, a disturbing 64 banks had gone belly up this year – the most since 1992 – costing the FDIC $12.5 billion. At the end of Q1, the agency was already asking for emergency funding.
And worse, much worse, is likely yet to come. The following chart shows the total assets on the books of the FDIC’s list of 305 troubled banks. The list doesn’t include the biggest banks that are considered too big to fail, as they are being separately supported with bailouts. By contrast, if the banks on this list fail, the FDIC is on the hook to have to step in and take them over and, of course, make depositors whole.
<have i mentioned peak oil? yes? k
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The hope is that the FDIC has weathered the worst of this storm and as things very slowly improve the assets they're on the hook for will move from "troubled" to "secure." It is a very real problem though, and I'm sure the FDIC was one of many who were crapping their pants when things started unraveling rapidly in late 2007.
My personal feeling is that it has done its job for this round (though it was close), but that it is certainly a possibility that it could go belly up in the future.