FDIC Asks Banks to Pre-Pay Deposit Insurance through 2012

[boosami]

Edit: Sorry, title should read through 2012.

The FDIC is the organization that insures our banks, and they run off payments from banks for participation in deposit insurance ("FDIC insured" means a bank is a participant). Apparently the FDIC has run out of money and is now asking banks to pre-pay 3 years worth of insurance by the end of the year (December 30th).

I know the FDIC has had to bail out a bunch of banks in the past year or so, but it makes me uneasy that the organization that insures our money is desperate for cash... And it sure can't be helping the teetering banks to have to cough up 3 times their annual deposit insurance dues all at once. On the bright side, I think they're hoping a 3 year "loan" to float them through will prevent having to raise the annual rates significantly, which would avoid making banking permanently more expensive.

Imagine if your auto insurance came up for renewal and they forced you to pay multiple years in advance...

Link: FDIC: Press Releases - PR-178-2009 9/29/2009

[buildmybudget]

It is incredulous how the community banks and credit unions have to pay for the mistakes of the "big" banks that are higher up the food chain to begin with. I simply can't believe this is being imposed and would def have a problem prepaying 3 years of insurance! Just ridiculous!

[Broken Arrow]

Yeah, heard this several days ago I think, when they were still weighing their options. It sure is "funny" isn't it?

I don't think the FDIC is in trouble though. They're only taking this route because they're trying to do this without getting any government subsidies involved....

The FDIC is definitely "Too Big to Fail" though, so worst case, it gets bailed out by Uncle Sam, and we move on as before.

[wincrasher]

Well there aren't any good choices, are there?

- Have the taxpayers cough up more borrowed bailout money
- Borrow money from the very banks you regulate
- Just stop insuring deposits altogether and watch the feathers fly
- Have the banks that reap the benefit of FDIC coverage advance some premiums.


Hmmm....hard choice....

[disneysteve]

Originally Posted by buildmybudget

It is incredulous how the community banks and credit unions have to pay for the mistakes of the "big" banks that are higher up the food chain to begin with.

I'm not sure that sentiment applies here. It isn't the "big" banks that have failed. The big boys, like BoA, Citi, Wells Fargo, TD, PNC, etc. are okay. The bank failures have been smaller local and regional banks.

[buildmybudget]

Point well taken Disney, however it's the increased regulations and expenses that accompany these regulations and requirements(ie: prepaid fdic insurance) that are bogging down community banks and credit unions. I'm merely saying that the majority of the write-offs are from larger banks, not community banks who have maintained sound lending practices.

[boosami]

Originally Posted by buildmybudget

Point well taken Disney, however it's the increased regulations and expenses that accompany these regulations and requirements(ie: prepaid fdic insurance) that are bogging down community banks and credit unions. I'm merely saying that the majority of the write-offs are from larger banks, not community banks who have maintained sound lending practices.

Right, plus the big boys have plenty of reserves to float this kind of pre-payment (especially those with government subsidies), but smaller and local banks are going to be much harder hit. FDIC premiums are a big expense for banks--they pay $0.05-0.50 per $100 deposit they receive over the course of a year. That can add up to hundreds of thousands of dollars, even for smaller banks. They may be having trouble footing that bill, let alone paying triple for a year.