6 ms·

Is it possible for FDIC to bankrupt with enough number of banks failing? Where that $250k insurance money come from really? If it is all Fed printed first the

Is it possible for FDIC to bankrupt with enough number of banks failing? Where that $250k insurance money come from really? If it is all Fed printed first then I understand assets are auctioned later to suck that printed money out of the market, sell and burn cash, right?

sschueller 4y ago
They can run out of funds but the taxpayer will bailout the FDIC. The FDIC has a pool of money that comes from fees they charge the banks. Currently I believe there is around 100 Billion left.
paxys 4y ago
If banks are failing at that rate it means that the national banking system has collapsed, and the FDIC is irrelevant.
- notch898a 4y ago
  We just burned ~1/6 of it on a single bank...
  - paxys 4y ago
    Which was the second largest bank failure in US history. If we have 5 more of these in quick succession then it's pretty safe to say that an insurance agency isn't going to be able to save the economy. You're going to need an act of Congress and a massive bailout, and perhaps even that won't be enough.
    - notch898a 4y ago
      FDIC's reserves are less than 2% of insured deposits and far less than 1% of GDP. Perhaps the banking system is broken if 5x more spooked VCs pull their money out in similarly correlated banks means everything goes up in flames.
    - unicornmama 4y ago
      For some perspective there was an average of one bank failure every two days in 1990. We were fine back then, we’ll be fine now.
      - _trampeltier 4y ago
        I'm pretty sure they all had been just small banks. SVG was really big compared to almost every other bank who failed the last 20 years. As banks get bigger and bigger, like CS and UBS is just UBS now. People say the new UBS is now to big to bail for Switzerland and not to just big to fail anymore.
wolpoli 4y ago
Last time in 2009, they took three years of advance premiums from its member institutions and operated the fund with a negative net balance. So it's unlikely that FDIC will go bankrupt.
wenyuanyu 4y ago
The FDIC is unlikely to fail. After all, as long as there is no major credit crunch (de-leveraging), money simply moves from one bank to another, and insurance premiums are collected regardless of where the money is located, money (and MTM short-falls) can be absorbed to big banks. Big banks, Fed and FDIC can work together to sort things out like this time. Additionally, the dollar is merely a piece of paper, and the FDIC essentially guarantees pieces paper with $250,000 or whatever face value printed. There may be intricate mechanisms at play, such as the FDIC issuing bonds which the Federal Reserve subsequently purchases, or the Fed buying Treasury securities and providing the proceeds to the FDIC in the form of loans or capital injections. Or Fed directly offers credit line with failing banks. It is difficult to envision any issues the FDIC could encounter that could not be effectively addressed by the Federal Reserve essentially printing more money. The value of US dollar is all about confidence, in the event of failing of FDIC, it is a testing moment of the confidence of USD. Although forced to print a lot more money could be bad for confidence, but not that catastrophic as FDIC failing.
- bradleyjg 4y ago
  After all, as long as there is no major credit crunch (de-leveraging), money simply moves from one bank to another, and insurance premiums are collected regardless of where the money is located, money (and MTM short-falls) can be absorbed to big banks. The insurance premiums are collected and insured amounts. Uninsured amounts don’t pay premiums. That’s why this was a bailout and not an insurance payout.
  - Lazare 4y ago
    That's not correct. > The assessment base has always been more than just insured deposits. From 1935 to 2010, a bank's assessment base was about equal to its total domestic deposits. As required by the Dodd- Frank Act, however, the FDIC amended its regulations effective April 2011 to define a bank's assessment base as its average consolidated total assets minus its average tangible equity. Therefore, a bank pays assessments on its total liabilities, not just insured deposits. From here: https://www.fdic.gov/resources/deposit-insurance/deposit-insurance-fund/dif-assessments.html https://www.fdic.gov/resources/deposit-insurance/deposit-ins...
lowkey 4y ago
FDIC holds $128 Billion that aims to protect ~$17 Trillion in depositor funds. With a 0.75% coverage ratio I do worry what happens in the case of more bank failures. The only question is will the bag holders be the US taxpayer or all dollar holders globally via inflation? The Fed is determined to fight inflation until their shareholders, the banks, are in trouble. Then we get to learn who the Fed really works for. Hint: not the people.
- kortilla 4y ago
  The fed has a dual mandate: employment and control on inflation. They don’t care about banks. Powell explicitly said as much in the press conference after they announced another rate hike and no intention to reduce interest rates in reaction to the SVB implosion.
  - bradleyjg 4y ago
    They are now also a bank regulator, though it seems a poor one given these events. https://www.federalreserve.gov/supervisionreg.htm https://www.federalreserve.gov/supervisionreg.htm
  - lowkey 4y ago
    You put more faith in the Fed than I do. As I see it, the Fed caused this crisis with a decade of loose money policy. Then they told us there would be no inflation. Then inflation was transitory. Then they were serious about fighting inflation until banks started failing. Suddenly they reversed course and wiped out 2 years of quantitative tightening in the past 2 weeks. [0] The Fed hasn’t apologized for any of those actions or accepted any responsibility, which tells me they haven’t learned a thing. As far as I am concerned the Fed is both regulator and PR arm of the banking industry. The Fed regulates their member banks, and very poorly it would seem based on events during the GFC and today. You can take Powell at his word. I remain skeptical. [0] https://mobile.twitter.com/1MarkMoss/status/1640099789537939457/photo/1 https://mobile.twitter.com/1MarkMoss/status/1640099789537939...
    - kortilla 4y ago
freddie_mercury 4y ago
No, it is not possible for the FDIC to go bankrupt. The law that creates the FDIC specifies that it is backed by the "full faith and credit" of the United States. While no specific mechanisms are defined (since they've never been needed), it means the FDIC has infinite money as long as the United States exists and can print its own money. https://www.fdic.gov/consumers/assistance/protection/depaccounts/confidence/symbol.html#Full https://www.fdic.gov/consumers/assistance/protection/depacco...
- bubbleRefuge 4y ago
  100% correct. Why is this same logic not used for SS and medicare?
  - ragnot 4y ago
    My personal theory: if people even had the remotest inkling that the insurance would fail, then it is next to useless. The point of it is to prevent the majority of people from inciting a bank run since they know for sure that their money is safe. It's a bit of weird game theory. There is no equivalent to a bank run risk on SS/Medicare so why put it in. Putting it in also means that these programs could cause massive inflation if the US Gov had to print money to finance them.
  - hguant 4y ago
    Dumb answer: because SS and Medicare pay for "real" goods and services and have to interact with the main street economy, whereas FDIC acts in conjunction with the Federal Reserve, and the effects aren't seen by the public - the money isn't "spent" on something, it's just not _not_ there. Also, the original statement is not quite correct - FDIC is funded by a special levy on all US banks, so while on principle it's backed by the "full faith and credit" of the US government, in actuality the money comes from the banking system itself. Edit to add: from the article: >The FDIC is funded by its member institutions through premiums and assessments paid on deposits. And, if ever needed, the FDIC can draw on a line of credit with the U.S. Treasury. So, if you're a bank, you have to be a member of FDIC, or the banking regulators come and take your bank away. Being an FDIC member means you have to give them money, pretty much according to their whim (or they come and take your bank away). If that's ever not enough to fund a "not bailout", FDIC can get a loan from the Treasury, to be paid back from those premiums and levies on the banks over a period of time.

sschueller 4y ago

They can run out of funds but the taxpayer will bailout the FDIC. The FDIC has a pool of money that comes from fees they charge the banks. Currently I believe there is around 100 Billion left.

paxys 4y ago

If banks are failing at that rate it means that the national banking system has collapsed, and the FDIC is irrelevant.

notch898a 4y ago
We just burned ~1/6 of it on a single bank...
- paxys 4y ago
  Which was the second largest bank failure in US history. If we have 5 more of these in quick succession then it's pretty safe to say that an insurance agency isn't going to be able to save the economy. You're going to need an act of Congress and a massive bailout, and perhaps even that won't be enough.
  - notch898a 4y ago
    FDIC's reserves are less than 2% of insured deposits and far less than 1% of GDP. Perhaps the banking system is broken if 5x more spooked VCs pull their money out in similarly correlated banks means everything goes up in flames.
  - unicornmama 4y ago
    For some perspective there was an average of one bank failure every two days in 1990. We were fine back then, we’ll be fine now.
    - _trampeltier 4y ago
      I'm pretty sure they all had been just small banks. SVG was really big compared to almost every other bank who failed the last 20 years. As banks get bigger and bigger, like CS and UBS is just UBS now. People say the new UBS is now to big to bail for Switzerland and not to just big to fail anymore.

wolpoli 4y ago

Last time in 2009, they took three years of advance premiums from its member institutions and operated the fund with a negative net balance. So it's unlikely that FDIC will go bankrupt.

wenyuanyu 4y ago

The FDIC is unlikely to fail. After all, as long as there is no major credit crunch (de-leveraging), money simply moves from one bank to another, and insurance premiums are collected regardless of where the money is located, money (and MTM short-falls) can be absorbed to big banks. Big banks, Fed and FDIC can work together to sort things out like this time. Additionally, the dollar is merely a piece of paper, and the FDIC essentially guarantees pieces paper with $250,000 or whatever face value printed. There may be intricate mechanisms at play, such as the FDIC issuing bonds which the Federal Reserve subsequently purchases, or the Fed buying Treasury securities and providing the proceeds to the FDIC in the form of loans or capital injections. Or Fed directly offers credit line with failing banks. It is difficult to envision any issues the FDIC could encounter that could not be effectively addressed by the Federal Reserve essentially printing more money. The value of US dollar is all about confidence, in the event of failing of FDIC, it is a testing moment of the confidence of USD. Although forced to print a lot more money could be bad for confidence, but not that catastrophic as FDIC failing.

bradleyjg 4y ago
After all, as long as there is no major credit crunch (de-leveraging), money simply moves from one bank to another, and insurance premiums are collected regardless of where the money is located, money (and MTM short-falls) can be absorbed to big banks. The insurance premiums are collected and insured amounts. Uninsured amounts don’t pay premiums. That’s why this was a bailout and not an insurance payout.
- Lazare 4y ago
  That's not correct. > The assessment base has always been more than just insured deposits. From 1935 to 2010, a bank's assessment base was about equal to its total domestic deposits. As required by the Dodd- Frank Act, however, the FDIC amended its regulations effective April 2011 to define a bank's assessment base as its average consolidated total assets minus its average tangible equity. Therefore, a bank pays assessments on its total liabilities, not just insured deposits. From here: https://www.fdic.gov/resources/deposit-insurance/deposit-insurance-fund/dif-assessments.html https://www.fdic.gov/resources/deposit-insurance/deposit-ins...

lowkey 4y ago

FDIC holds $128 Billion that aims to protect ~$17 Trillion in depositor funds. With a 0.75% coverage ratio I do worry what happens in the case of more bank failures. The only question is will the bag holders be the US taxpayer or all dollar holders globally via inflation? The Fed is determined to fight inflation until their shareholders, the banks, are in trouble. Then we get to learn who the Fed really works for. Hint: not the people.

kortilla 4y ago
The fed has a dual mandate: employment and control on inflation. They don’t care about banks. Powell explicitly said as much in the press conference after they announced another rate hike and no intention to reduce interest rates in reaction to the SVB implosion.
- bradleyjg 4y ago
  They are now also a bank regulator, though it seems a poor one given these events. https://www.federalreserve.gov/supervisionreg.htm https://www.federalreserve.gov/supervisionreg.htm
- lowkey 4y ago
  You put more faith in the Fed than I do. As I see it, the Fed caused this crisis with a decade of loose money policy. Then they told us there would be no inflation. Then inflation was transitory. Then they were serious about fighting inflation until banks started failing. Suddenly they reversed course and wiped out 2 years of quantitative tightening in the past 2 weeks. [0] The Fed hasn’t apologized for any of those actions or accepted any responsibility, which tells me they haven’t learned a thing. As far as I am concerned the Fed is both regulator and PR arm of the banking industry. The Fed regulates their member banks, and very poorly it would seem based on events during the GFC and today. You can take Powell at his word. I remain skeptical. [0] https://mobile.twitter.com/1MarkMoss/status/1640099789537939457/photo/1 https://mobile.twitter.com/1MarkMoss/status/1640099789537939...
  - kortilla 4y ago

freddie_mercury 4y ago

No, it is not possible for the FDIC to go bankrupt. The law that creates the FDIC specifies that it is backed by the "full faith and credit" of the United States. While no specific mechanisms are defined (since they've never been needed), it means the FDIC has infinite money as long as the United States exists and can print its own money. https://www.fdic.gov/consumers/assistance/protection/depaccounts/confidence/symbol.html#Full https://www.fdic.gov/consumers/assistance/protection/depacco...

bubbleRefuge 4y ago
100% correct. Why is this same logic not used for SS and medicare?
- ragnot 4y ago
  My personal theory: if people even had the remotest inkling that the insurance would fail, then it is next to useless. The point of it is to prevent the majority of people from inciting a bank run since they know for sure that their money is safe. It's a bit of weird game theory. There is no equivalent to a bank run risk on SS/Medicare so why put it in. Putting it in also means that these programs could cause massive inflation if the US Gov had to print money to finance them.
- hguant 4y ago
  Dumb answer: because SS and Medicare pay for "real" goods and services and have to interact with the main street economy, whereas FDIC acts in conjunction with the Federal Reserve, and the effects aren't seen by the public - the money isn't "spent" on something, it's just not _not_ there. Also, the original statement is not quite correct - FDIC is funded by a special levy on all US banks, so while on principle it's backed by the "full faith and credit" of the US government, in actuality the money comes from the banking system itself. Edit to add: from the article: >The FDIC is funded by its member institutions through premiums and assessments paid on deposits. And, if ever needed, the FDIC can draw on a line of credit with the U.S. Treasury. So, if you're a bank, you have to be a member of FDIC, or the banking regulators come and take your bank away. Being an FDIC member means you have to give them money, pretty much according to their whim (or they come and take your bank away). If that's ever not enough to fund a "not bailout", FDIC can get a loan from the Treasury, to be paid back from those premiums and levies on the banks over a period of time.