Sunday, October 18, 2009
FDIC is Running Out of Money
By Rico K. Setyo
The Federal Deposit Insurance Corporation (FDIC) was created by Congress to maintain stability and public confidence in the nation's financial system by: insuring deposits,examining and supervising financial institutions for safety and soundness and consumer protection, and managing receiverships (FDIC.gov). However, in these recent tough economic times where financial institutions are failing at a rapid rate, the FDIC is having trouble managing their organization to assist such issues. Sheila C. Bair, the FDIC chairman, states that despite the economic recovery, many banks are still expected to fail. As of this year, about 100 banks have failed and the FDIC has estimated the cost of failures to be $100 Billion for the next few years. FDIC uses their deposit insurance fund to bail out all these financial institutions. However, recently, the FDIC has claimed that the funds are decreasing at such a rapid rate that the net worth has become negative. Blair, has some recommendations to solve such issues but the causes have been analyzed by other experts.
One of the causes that many experts say is that the FDIC has been poorly managed because it was not able to generate enough revenue to cover such emergencies. Another issue might have been Congress because of a limitation to how the FDIC can raise funds but in 2006 Congress has changed the law. However, FDIC did not act quickly by charging banks premiums for the insurance fund. Now that the fund is at a negative net worth, Blair mentions that she will charge banks higher premiums to replenish the funds. Another way to solve the negative net worth might be to borrow from the Department of Treasury but many people are not in support of such drastic actions.