Wednesday, August 27, 2008

Banking Crisis to Worsen with FDIC Already in Trouble

Ms. Bair’s agency is stretched.
Dozens of staff members who had been through the banking crises of the early 1990s retired in recent years. Despite her efforts to bring some seasoned examiners back, her small army of examiners is largely untested.

Meanwhile, there are growing questions about the adequacy of F.D.I.C.’s insurance fund, which guarantees repayment on deposit accounts of up to $100,000 when banks collapse. The fund dwindled to $45.2 billion during the second quarter, from $53 billion in the first quarter.

To replenish its fund, the agency will probably have to raise the fees it charges banks by at least 14 cents for every $100 of deposits, according to estimates by analysts. Ms. Bair declined to comment on the likely size of any increase but said the agency was proposing to revamp its fees so that institutions engaging in high-risk practices would pay higher rates.

“It only seems fair,” Ms. Bair, 54, said. Such a move is expected to draw criticism from banks.

How Ms. Bair navigates the financial and political landmines ahead will help determine the course of the banking industry and, by extension, the broader economy. It will also determine her legacy.
Here's where it gets interesting and the plot substantially thickens;
Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

The borrowed money would be repaid once the assets of that failed bank are sold.

"I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses," Chairman Sheila Bair said in an interview with the paper.
Higher fees? Treasury borrowing? Sounds to me like there's some big, big trouble on the way and the cavalry as non-existent for peeple's money as it was for their flooded out neighborhoods in Nawlins.....,


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