FDIC Out of Money

Maybe the mattress is the best place for money, after all?

The chairman of the Federal Deposit Insurance Corp. says she is “considering all options, including borrowing from Treasury,” to replenish the dwindling fund that insures bank deposits.

“I never say never,” FDIC Chairman Sheila Bair told an audience at Georgetown University Friday.

Bair’s remarks go beyond what she said just three weeks ago when asked about tapping the Treasury after the fund that insures regular deposit accounts up to $250,000 hit its lowest point since 1992, at the height of the savings-and-loan crisis. “Not at this point in time,” she said on Aug. 27.

The FDIC estimates bank failures will cost the fund around $70 billion through 2013. Ninety-two banks have failed so far this year. Hundreds more are expected to fall in coming years largely because of souring loans for commercial real estate.

The FDIC’s fund has slipped to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent. The $10.4 billion in the fund at the end of June is down from $13 billion at the end of March, and $45.2 billion in the second quarter of 2008.

More failures and less payments in to the fund – the FDIC, of course, only works as long as only a few banks per year fail. As we’ll probably have more than 100 fail this year, and probably as many next year, this is the “push comes to shove” time for the FDIC…and it has failed.