Wednesday, March 18, 2009

"Stunningly stupid move": FDIC endangers successful banks by slapping them with extra charge on FDIC deposits

Once again, the people who did what they were supposed to do are getting hit with the bill to bailout the people who should have known better. In what one insurance industry writer called a "stunningly stupid move," the FDIC is charging banks an extra 20 basis points on their FDIC insurance to help fund the bailout of unprofitable banks.

One banker I talked to said this caused his FDIC insurance fee this year to go up ten-fold. He said his bank was profitable, so it wouldn't cause them major grief, but, he said, there are many banks on the tipping point right now--banks that, given a shock like this, will go under. His prediction? 1500 more banks out of business as a result of the government charging them to help banks that are in danger of going out of business.

Got that?

Here is the post from Insurance News:

In a stunningly stupid move, the FDIC, led by Sheila Blair, has recommended the assessment of a one time 20 basis point fee on bank deposits. It will use this to pay for its projected $80 billion in bank failures for 2008 through 2013.

This is clearly ridiculous.

To start with, the government is pumping hundreds of billions of dollars into the banking system, and trillions of dollars into the country at large. This assessment will hit large and small, strong and weak, banks alike. So it’s sort of like taking from the rich and giving to the poor. Recycle, and rinse. Take from all banks, and pump that money back into the banks that could not survive on their own. When that money runs out, repeat, and put more money into the banks that could not survive on their own (Citi?).

Why weaken the strong banks, who will either lose capital through this, or just pass the costs in the form of lower yields to consumers? Take the money from TARP and whatever the next round of $700 billion financing is called, and fund the FDIC properly. No one said that the government is supposed to fund the FDIC, but no one said that these times are normal. After all, the risk modelers in the FDIC obviously didn’t contemplate the fall of housing prices and the subsequent carnage (they didn’t charge the banks enough to properly self-insure).

Should all banks have to pay the price? Think of the bank that is muddling its way through this Great Recession. It gets hit with this fee and teeters a bit more. The government is not going to fund it, because it’s not a monolith that will cause armageddon upon failure. What happens?

It fails.


Lee said...

Martin, thanks, I linked to this post in my own blog.

BimBeau said...


Tell the WHOLE TRUTH! Thay aren't paying anything now because the National Socialist regime of the "W's" excused all FDIC fees since they weren't regulating anyhow.

This is an inherent Republican trait --- under your rules of engagement (ROE) can't say that this is one of the values that makes one a Republican. Note --- I didn't say it; I said I may not say it.

Lobotomies are available for any Democrat who wishes to use one to qualify to join the Republican Party. Just E-mail me for an appointment.

Additionally, government has no busines recognizing marriage. Churches have made a mess of it by trying to turn it into the status quo of social behavior. Personally, I like changing sex partners on a whim. So much MORE fun than the same old warhorse.