The tally of failed federally insured banks has reached 94 so far this year, causing a rapid decline in the FDIC’s deposit insurance fund as it has been appointed receiver for these banks. Despite imposing a special assessment charge on banks a few months ago, the FDIC’s cash balance now stands at a third of its size at the start of the year. As a result, the current move would be a great relief for the FDIC.
The bailout is necessary to replenish the deposit insurance fund, as it has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.
The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of failing financial institutions has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.
The recent plan looks like a reverse bailout. Banks and their lobbyists have strongly supported the plan as instead of paying higher fees to support the FDIC, the banks would now lend money to FDIC which might be accretive to their earnings.
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