I’m not saying that the FDIC will have problems, but from 1996 to 2006, banks did not pay any money to fund FDIC insurance, so a major failure could extend beyond the reach of the FDIC reserves.

By comparison during the S&L crisis in the 1980′s & early 1990′s we had over 200 banks for sever years in a row and it peaked with 900-1000 banks failing in a 2 year period of 1988 & 1989.

Also, it should be made clear that while the FDIC is backed by the US Treasury, the money to support bank failures is not tax dollars. THe FDIC insurance is funded by fees paid by the banks themselves. Its an insurance system funded by the banks. Its not a taxpayer handout. THe credit line from the US government is backup money so they have quick/short term capital if or when they might need it. They normally have $30B line of credit with the US Treasury.

Giving $250,000 to everyone in the USA would be $75 Trillion dollars.

P. S. If my calculations are incorrect, please let me know. I apologize in advance for my ADD if that is that case.

I saw the 60 minutes interview with Bair – they already have some pretty dire/conservative projections of how many banks are going to fail (she wouldn’t give the quantitative estimate) and to what degree. In many cases, they actually find a private buyer and the FDIC doesn’t even lose much money (relatively speaking).

If you think banks are tumbling, there are triple short ETFs; if recovering, triple long. I tweeted and posted on some trades to accomodate both – hedging with long FAZ with call options on FAS. Up 27% today. Playing out ok over past few days. Interesting to see what happens following upcoming meetings on mark to market and uptick rules, etc. May see huge volatility in shares.

http://s.wsj.net/public/resources/documents/fdic030509.pdf

As evident from previous failures, so many people are already unaware of FDIC insurance. This kind of talk just worsens it.

In keeping with this philosophy, I put a deposit on a car yesterday because the deal was too good to pass up and it was the optimal time to trade in my car before the warranty expired. I’m using cash to get the highest rebate.

She also mentions the source of the funds they use:
“No. it is money from our reserves which, and we are funded by insurance premiums that are assessed on banks. So, no it’s not taxpayer money,”

You can read the textual version of the story or watch the video here:
http://www.cbsnews.com/stories/2009/03/06/60minutes/main4848047.shtml

I read somewhere, or heard someone interviewed, but can’t remember where, from an FDIC spokesperson that they had plenty of money to cover all anticipated bank closures with money left over in their budget.

You’re exactly right. This is precisely what the FDIC had been claiming until the other day when they announced they’d be asking the government for the $500 billion credit line. Amazing how things suddenly “change” from one day to the next. It seems as if the FDIC was overstating their position to ensure there wouldn’t be a run on banks…

You’re also right about how banks fail under normal circumstances; an acquiring bank is immediately able to fulfill the obligations, but this system can break down if acquiring banks don’t step in quickly, and we might not be in normal circumstances.

That being said, like “Common Sense” above, I find it highly unlikely that there will be a problem. The FDIC will get the money it needs.

Plus…not all banks that close end up forfeiting the savings right? I mean…if a local bank “fails” and is acquired then your savings are just under that bank now.

I’m with a credit union … and ING. I’m not sure how the credit union insurance applies…but we have nowhere nearly 100k anyway.

When banks fail they are most often acquired by another, stronger bank. The FDIC works hard to insure that there is no gap between the closure of one bank and the re-opening under the new bank’s name. Information about the financial strength of all banks is readily avaialble on the FDIC’s web-site. You can compare actual dollars and ratios for the most recent quarter and previous quarters to see how your bank’s current performance compares to its past performance.

Fear and uncertainity fuel the crisis. Knowledge is power. There is no cause for concern with any account below the insurance threshold and very little cause for concern in financially healthy banks.

As for the FDIC, if they run out of money the govt will give them more, that doesn’t worry me at all.