The Federal Deposit Insurance Corp. and the government have been dreading the eventual failure of bank No. 100 this year, as the unwanted milestone is a negative psychological barrier which reminds the American people that the recession isn’t close to being over, no matter what the mainstream media lapdogs assert and parrot.
As far as handling the ongoing explosion of bank failures, the FDIC, which is already operating in the red, hit banks with a prepay bill of $45 billion in insurance premiums which are due by the end of 2009.
While highly unlikely, the FDIC asserts these funds will cover the remainder of the failed banks’ deposits through 2012. Recent revisions of losses to the Deposit Insurance fund upgraded estimated costs at $100 billion, a 40 percent increase over previous estimates of $70 billion. You have to wonder how many times these number will be upwardly revised over the next several years.
Officially the deposit insurance fund went into the red close to the end of the third quarter, although the numbers haven’t been made available yet.
There are other options for FDIC head Sheila Bair to tap if things get worse, as there is a $100 billion immediate access to authorized U.S. Treasury funds, with another $400 billion ready if needed, but which would require the approval of Treasury Secretary Timothy Geithner and the Federal Reserve, something Bair is loath to do.
Bair has stated publicly she prefers not to use the Treasury unless absolutely necessary, feeling it would give more negative perception that they also needed to be bailed out.
Some have questioned the wisdom of that decision and outlook from Bair, saying it would have been easy to delve into the Treasury funds and pay them back with the banking fees.
There is more there than meets the eye though, as there are inner battles for transference of power to certain agencies, where Bair obviously wants it to go to the FDIC, while Timothy Geithner prefers the Federal Reserve.
It’s quite possible that Bair doesn’t want to take the Treasury money as it would make her and the FDIC look weak and in need of a bailout, as mentioned, undermining her desire to be invested in more economic power via the FDIC.
Bair, like others, has hopes the need won’t arise or arrive where she’ll need to access the Treasury funds, but adds that while it will take approximately seven years to build up the DIF again, if things to go south in the economy and worse than expected, at that time she’ll reconsider. She asserts that that time has not come yet.
