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How Safe is the FDIC? Article Reviews the Issue

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With Indymac's failure costing the FDIC $4 to $8 billion of its $53 billion insurance fund, there are some concerns about the soundness of the FDIC. But according to this CNN article:
Most financial experts agree that the FDIC is well positioned to weather the expected increase in failures.

However, there are many unknowns. As a former FDIC chairman mentioned, it's very hard to know what banks will fail next. We were able to tell that Indymac wasn't on the FDIC's secret list of problem banks since the FDIC had reported the total assets of these problem banks as only $26 billion. Indymac had $32 billion in assets.

There is some concern that a few of the nation's largest banks could be at risk of failure. But as the article mentions, the FDIC should be able to cover these costs without resorting to taxpayer funds. The FDIC pays for the insurance fund from premiums charged to the banks. The Indymac failure is already causing an increase of these premiums. More large failures will likely cause the premiums to further increase. This may not directly affect customers, but I would think the higher costs will be passed on to customers as less attractive rates and more fees.

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Comments
7 comments.
Comment #1 by Noah (anonymous) posted on
Noah
$53 insurance fund eh? ;)

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Comment #2 by Banking Guy (anonymous) posted on
Banking Guy
yea, $53 wouldn't last long. Got the billion in there now.

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Comment #3 by Anonymous posted on
Anonymous
Banking Guy, not a huge surprise, but you nailed it. The extra costs imposed by the FDIC will indeed precipitate lower bank CD yields and higher bank fees. This is not something the FDIC likes to highlight, point to, or make clear. I hope we get some help on the credit union side. Am not sure we will.

As for future bank failures, that is entirely in the hands of Senator Chuck E. Schumer. :-)

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Comment #4 by tuphat (anonymous) posted on
tuphat
It's ridiculous to worry about the solvency of the FDIC. Even assuming the FDIC burned through all its assets, it is backed by the full faith and credit of the United States government, which would kick in whatever is necessary to satisfy the FDIC's obligations. There are a lot of things wirth worrying about, this is NOT one of them.

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Comment #5 by Anonymous posted on
Anonymous
Now that FDIC is operating Indymac bank. Can we deposit more than $100,000 into the account? Sure it's not "insured", but it might as well be if FDIC is operating it.

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Comment #6 by O-Qua Tangin Wann (anonymous) posted on
O-Qua Tangin Wann
The FDIC intends on selling IndyMac Federal to someone else.

When that happens, your over $100K funds will become uninsured (unless they are POD, ITF, Joint, etc.).

~O-Qua Tangin Wann

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Comment #7 by Anonymous posted on
Anonymous
The FDIC is safe . . for now. But there is a good possibility Senator Obama will be elected POTUS within several months. Obama believes in the superiority of European approaches to virtually everything. So know this: In Europe insurance of bank deposits is handled differently than here in the USA. In the UK, for example, only the first £2000 of deposits is fully insured. Of the next £30,000 a person might have on deposit, only 90% is insured. £30,000 is roughly US$60,000. The European approach leaves some risk of loss with the depositor. You might like this approach or not like it. You might agree with this approach or not agree. I don't have a dog in that fight. But with Obama so strong, I do suggest you be aware of the different European approach to bank insurance. Consider, too, that a variation of that UK scheme could be concocted so that only high net worth individuals would be impacted. What greater appeal could such an idea have to folks who think like Obama, and that includes his friends in the US Congress.

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