FDIC May Borrow $500 Billion

Something doesn't jive here. If the FDIC is estimating losses to be $65 billion through 2013, then why do they need $500 billion in borrowing authority? The FDIC fund took a $33.5 billion hit in 2007 alone and the number of banks being siezed is accelarating rapidly. FDIC Chairperson Sheila Bair (who I think is extremely competent) is being a little optimistic or more likely just pulling the wool over the public's eyes: "the banks are fine don't worry we have everything under control".-Lou

More borrowing authority for FDIC?

Marketwatch

Later Thursday, or Friday, Senators will consider an amendment to the housing bill that would allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury for the agency's deposit insurance fund.

The legislation, introduced by Senate Banking Committee Chairman Christopher Dodd, D-Conn., would temporarily provide government funds to pay depositors of failed financial institutions.

Dodd's legislation would increase the FDIC's borrowing authority to $500 billion until the end of 2010. The bill would also hike the agency's permanent borrowing authority from Treasury to $100 billion from $30 billion.

The fees are used to pay depositors of failed institutions, as well as administrative costs at the agency.

FDIC Chairwoman Sheila Bair said she has been in discussions with key lawmakers about the borrowing authority from the Treasury Department, which would help her limit additional fees the FDIC is charging banks to build up its deposit insurance.

Bair said the deposit insurance fund has declined and is likely to decline further, as more banks fail due to the economic crisis. So far, 21 banks have failed in 2009. Bair estimates that bank failures could cost the fund $65 billion through 2013.

So far there have been over 29 bank failures in 2009, while 25 banks failed in 2008. Two of the bank failures in 2008 were the mega-collapses of Indymac Bank and Washington Mutual Inc.
The fund had $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

In February, the FDIC raised the fee amount it expects to collect from banks for 2009. In total, it expects to bring in $12 billion from banks in 2009. In addition, the FDIC announced plans to have a special one-time assessment that banks will need to pay on Sept. 30, 2009. The FDIC has tentatively said it wants to bring in $15 billion from banks as part of this emergency charge, but so far it hasn't committed to requiring that amount.