As a quick followup to last week’s article on FDIC solvency, I just wanted to point out that the FDIC has opted to accelerate bank premiums to help build up their cash on hand from the current $10B level.
Under the just-announced plan, the FDIC will require banks to prepay their 2010-2012 assessments when they pay their Q4 2009 premiums. There will also be a three basis point (0.03%) increase in premiums starting in 2011.
From what I’ve heard, the increased cushion will amount to roughly $10B per year of accelerated premiums, or $30B total. Of course, this also means that the FDIC won’t be collecting any money from 2010-2012 unless they change the rules.
4 Responses to “FDIC to Seek Premium Prepayments”
The unique thing about the FDIC and really the government as a whole for that matter is that as much as we can speculate about this or about that the FDIC has one unique advantage over any other type of non governmental entity in that if their projections are off then they have the luxury of simply tapping all of us for more money in the form of increased taxes or decreased purchasing power because of their inflation producing money printing obsession.
My $.02 : I think the whole thing will blow over within 1-2 years. They already propped up almost all the major banks with the bailout. Those banks won’t fail. More smaller banks will fail but nothing too massive and the actual losses to the FDIC won’t be that big. A $30B increase in the reserve should be enough to last them through.
Matt: They actually have a $500B line of credit with the Treasury, but have been reticent to tap it. Where that $500B would actually come from is another question entirely.
My thought is… they will just change the rules when 2010 – 2012 roll around and come up with the money some other way at that time. If we look to the past for guidance… that will most likely mean printing more money out of thin air or raising taxes on individuals and small businesses.