As good as nationalization, FDIC might dip into Treasury for loans
Pretty much as good as nationalization of the banking industry, new indications from the FDIC have stated that they might have to borrow from the treasury to get back on track. New loans from the Treasury will allow the FDIC to wade through a bulk of regional bank failures as depositors are guaranteed up to $100,000 per account per bank per person.
One thing that I have noticed in all forms of media is more advertising for the FDIC and protecting depositors money. Never before the last few months have I ever seen an advertisement either on TV or in print media such as the Investors Business Daily and other non-investing magazines for the FDIC. This tells me that we’re in troubled times, even the Government insurance program is raising awareness that deposits are safe. Whether pre-empting fear related to bank failures or just making a statement that the baking system is sound, if anything is true it is that the banks aren’t safe places for your money. Without the FDIC, many people would be out billions with the collapse of IndyMac and likely hundreds of smaller banks who’s loan portfolios are under diversified to say the least.
It hasn’t been since the early 1990s that the FDIC had to tap the Treasury to be able to fund itself. A large spread fallout of many banks in the 90s. Whether the FDIC is just planning for the worst or if borrowing from the Treasury will become business as usual, investors should consider where their money is and consider reallocating savings if you have over $100,000 at any one particular bank. $45.2 Billion is the number stated by the FDIC for a reasonable fund to insure depositors, this amount could come from a number of sources. Higher insurance rates to banks would raise money quickly, treasury loans could help give short term amounts of capital or charging banks more for riskier lending practices.
The FDIC has said that it does not intend to pass on losses to the Treasury, but instead seek short term capital. If there is anything that can be learned from government, it is that short term practices eventually go long term. The treasury may feel that loaning money as opposed to giving money, may put too much pressure on banks and eventually eat the losses of the FDIC loans. Investors as a whole need to make sure that this kind of financial ridiculousness does not happen.
