The credit crisis continues to have repercussions and this time it is the FDIC that is feeling the pinch. The regulatory agency is flat out busted after having spent about $28bn to cover 120 bank failures so far this year.
Ironically, Chair Bair is asking the very industry that her agency seeks to protect for a bailout of sorts by requiring prepaid insurance premiums amounting to about $45bn in fees. The new normal for capitalism seems to be all for one and one for all.+
This adversely impacts many small banks and unfortunately penalizes well run financial institutions to bear the burden of mitigating risks for other less well managed banks. If this type of nonsense continues, at some point someone has to decide that it’s time to shoot the dog and be done with it.
The Federal Deposit Insurance Corp. board voted to mandate the early payments of premiums for 2010 through 2012. Amid the struggling economy and rising loan defaults, 120 banks have failed so far this year, costing the insurance fund more than $28 billion.
To address concerns of small banks in weak financial condition, the FDIC also set up an exemption process for those that prove the prepaid fees would be a hardship.
The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.
The Regional Bank Holders exchange traded fund (RKH) is not taking this news very well and is currently down -2.18% as I post this report.
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