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The FDIC is Running Out of Money – Is Your Money Safe?

Due to the quickly increasing number of banking institution failures, the FDIC (Federal Deposit Insurance Corporation) is basically running out of money. People specifically look for banking institutions that are backed by the FDIC in order to ensure the safety of their deposits – but what happens if the FDIC runs out of money? Is there a risk even if your money is held in an FDIC insured bank?

Previously, the FDIC had reported that the funds were running low, due to the number of banks failing, and that they predicted that future bank failures could cost the fund about $65 billion through the year 2013. In an effort to replenish the insurance funds, the FDIC said it would begin charging United States banks a one-time assessment of 20 cents per $100 insured; and increase other fees. The regular fee in 2007 averaged 5.4 cents, and it was increased in April 2008 to 10 to 14 cents; and will be increased again to 12 to 16 cents. Prior to 2007, more than 90% of banks did not pay fees for deposit insurance (because it wasn't necessary). These additional fees are estimated to generate $27 billion compared to the $3 billion the fees raised in 2008, according to the FDIC board, but will still fall short of the estimated need for funds in light of the number of bank failures.

“We’re taking steps today to ensure that the deposit insurance system remains sound,” FDIC Chairman Sheila Bair said during a board meeting at the agency’s Washington headquarters. “These steps are necessary because banks, and not taxpayers, are expected to fund the system.”

Since the beginning of 2008, there have been 58 bank failures reported. The Federal Deposit Insurance Corporation fund is used to reimburse customers for their deposits, up to as much as $250,000 currently, whenever the bank fails. Last year, Congress increased the amount of FDIC coverage from $100,000 to $250,000 per depositor, which is also contributing to the depletion of the funds. The fund decreased from $34.6 billion to $18.9 billion in the fourth quarter.

A bill introduced in Congress would provide a $500 billion loan from the government to the FDIC, in order to ensure the fund has the necessary money to continue backing individual bank accounts up to $250,000. The bill is labeled the Depositor Protection Act of 2009 and is backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. And Senator Mike Crapo, R-Idaho.

Is your money safe? During the first great depression, there was a run on the banks. People were scrambling to pull their money out of savings accounts and banking institutions for fear that if/when the banks went under they would lose all of their money. This prompted the founding of the Federal Deposit Insurance Corporation, in order to provide insurance to bankers that their money would be safe, even if their bank failed. The $500 billion loan from the government, combined with the increase of fees the FDIC is charging banks to help re-fund the system, is all meant to keep your money secure and prevent people from withdrawing their money from the banking system (and causing the Second Great Depression!)