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An interesting question: how is the FDIC financed? Will they go bankrupt if enough small banks collapse? Or are they sitting on an infinitely deep well of mon
by ur-whale 4y ago
An interesting question: how is the FDIC financed?
Will they go bankrupt if enough small banks collapse?
Or are they sitting on an infinitely deep well of money somehow?
- hayksaakian 4y agoFDIC charges insurance premiums to banks
- ur-whale 4y ago> FDIC charges insurance premiums to banks In other words: the float is finite [1] No other source of financing? Someone mentioned "backstopped by the government". What does that mean? Unlimited credit line with the Fed? [1] https://www.arnolditkin.com/blog/insurance/understanding-insurance-company-float/ https://www.arnolditkin.com/blog/insurance/understanding-ins...
- piperswe 4y agoFDIC is backed with the full faith and credit of the United States government, so in the event that they run out of money they will pay out of a "line of credit with the U.S. Treasury." - https://www.fdic.gov/consumers/assistance/protection/depaccounts/confidence/symbol.html https://www.fdic.gov/consumers/assistance/protection/depacco...
- rcme 4y agoThey have money paid in from member banks but they are ultimately backstopped by the government.
- itsgrimetime 4y agoDepartment of Treasury, so effectively infinite
- adastra22 4y agoThis is incorrect. It is an insurance scheme paid through bank premiums. Obviously if the money ran out the Fed would (probably) step in, but that is not how it is structured and supposed to work.
- ummonk 4y agoNot "probably". The government is the ultimate backer of the FDIC and would be obligated to step in if FDIC were somehow unable to cover its obligations.
- adastra22 4y agoThere is no legal obligation for the government to step in. If the FDIC runs out of money, it runs out of money. Everyone expect that IF that were to happen, then Congress would step in and provide legal authorization for the FDIC to use treasury funds, or whatever other scheme is chosen for backing the FDIC's obligations. Because presumably in that situation letting the FDIC fail would be a far worse outcome. But this is not how things are required to play out, with existing legal authorizations. It's just speculation. Right now, according to the law, if the FDIC rainy day funds run out there is no further source of funds to bail out banks.