Thursday, October 1, 2009

Alice in Wonderland FDIC Insurance

The FDIC is out of money and desperately needs to raise some. Their latest scam is to charge banks three years in advance premiums. That in a nutshell is the headline story, but there is more.

U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the FDIC considers risky, according to Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. In order to raise the $45 billion it needs, the FDIC has huge incentive to rank the largest banks as the riskiest, and that's what they are doing.

Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion on its $814 billion in deposits (38 cents per hundred), JPMorgan Chase & Co. may pay $2.4 billion, Bank America $3.5 billion and Citigroup Inc. $1.2 billion.

This does not include the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.

“This seems like a very hefty amount,” Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis told Bloomberg. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”

You have this bizarre shell game going on. The FDIC does not want to appear as though it is going to the Treasury for money, so it is squeezing the big banks, who only can be squeezed because of the bailouts they received from the Federal Reserve and Treasury. Bottom line, it is Treasury/Federal Reserve money despite the FDIC's attempt to hide the fact.

1 comment:

  1. True, and what better way to drain reserves than to send some of into the black hole of govt spending?

    From Fed, to BofA. From BofA to FDIC. Neat.

    Sheila Bair must be feeling squeezed herself because her turf will soon have its own M&A with the Treasury,

    Maybe she'll land a gig with Blackrock.