Re: FDIC: Special Assessment, Restoration Plan and Proposal for Maintaining Fund Liquidity
Very dry reading for sure, but exceptionally important.
The FDIC provides the "insurance" that you will get back the amount of money in your checking or savings account (up to $250,000) if your bank fails. When a bank fails they replace your money from the money in their bank account. The FDIC is only required to have 1.15% of all the cash they may owe to depositors in their bank account. This year alone they have paid out over 25 billion dollars and expect through the end of this year and next year to pay out another 75 billion dollars. This memo basically states that they will probably run out of money in the short run (over the next 18 months) to pay off everyone who has a checking or savings account in a bank that fails.
The FDIC is now searching for ways to increase the money in their account to pay off everyone who will lose savings and checking account money over the next year and a half. One of their solutions is to force banks to prepay their "insurance" premium early. "Staff proposes that the FDIC collect the prepaid assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012 on December 30, 2009, along with the regular quarterly deposit insurance assessments for the third quarter of 2009."
If this sounds ominous, it is. The problem is similar to Social Security issues, paying people now with hopes that things will change in the future. This approach assumes that banks will stabilize and be sufficiently profitable in sufficient numbers in the distant future to build back up the required reserves to 1.15% of all deposits within seven to eight years.
If there are serious disruptions to the fragile economic system in the USA, such as a debilitating second pandemic wave, there is the distinct possibility that the FDIC will not have enough money to repay you for money lost in your savings or checking account if you bank fails.
