FDIC's Insurance Deposit Fund: How's That for Under Capitalized?

If you think Fannie Mae (FNM) or Freddie Mac (FRE) are under-capitalized, then how about this very rough, and very non analytical back of the envelope capitalization for the Federal Deposit Insurance Corporation [FDIC] insurance deposit fund?

Combined Deposit Insurance Fund Balance - $52.8 billion (before Indy Mac (IMB) failure).
Insured Deposits - $4.4 trillion.
Reserve Ratio - 1.19%.

Of course I am sure there is more to it than that. The FDIC can raise premiums, and ultimately, the U.S. Government is there.

Here are some historical nuggets that I gleaned from the same page:

1) The chart goes back to 1990, which is the year that failed assets peaked at $145.339 billion. Indy Mac has $32 billion in assets so we are already at 20% of the 1990 peak.

2) The fund balance went negative in 1991, at $6.9 billion.

3) The current reserve ratio of 1.19% is the lowest since 1995, when it was 1.08%. This is calculated before the latest bank failure. If we use the mid point of the estimated losses of $4-8 billion, then the fund balance falls to $46 billion, and the reserve ratio falls to approximately 1.04%.

I don't understand why the FDIC let the reserve ratio run down from a high of 1.38% in 1999, considering that everyone and their mother saw this storm coming. During the good times they should have over-assessed the banks to prepare for this.

Comments

[Giancantor:]

Bears Stearns, Federal Reserve, FDIC, Indy Bank, bankrupt property owners, etc. What a bunch of morons! As a taxpayer, who lives below my means, why should my tax money be used to bail these jerks out! It is about time that these morons suffer the consequences of their actions!

2008 Jul 13 11:26 AM

[Silverback:]

Say good-bye to the free market system. Take two giant steps forward into socialism.

We really need the Government to decide what ventures will succeed or fail. Intelligence and business savvy will have no place in our brave new world.

Line up, it is time for your shot.

2008 Jul 13 12:40 PM

[br4711:]

The FDIC has for the last 20 years or so been also operating under the scenario that the BIG banks are to big to fail. Thus, they even have stopped assessing ins. premiums in prior years thinking that the 35-50 billion would always be sufficient. Now the big banks cannot be kept open as in previous years when the FED would just open the spicket to them. FIDICIA, passed in 1991, strictly forbids the FED from doing this. Bernanke and that bunch are not adhering to the rules in FIDICIA or the big banks would have already collapsed because of illiquidity. Thus, as the big banks collapse in the next few months the FDIC will be short of funds. By the way, FIDICA says that the remaining banks will be assessed for the failures' liabilities. maybe this time the tax payer may get a reprieve. That is, if anyone desires to enforce FIDICIA...

2008 Jul 13 04:49 PM

[mojo442:]

The article about the undercapitalization of the FDIC brings to the table the truth about how the politicians play with the economy.First they let the mortgage industry write fraudulent mortgages for years, then they suck the equity out of capital appreciaition in the hosing market, turn into consumer indiscretionary spending and then the whole bubble collapses when the investment banking firms sell mortgage products backed by air and rated AAA.

Where were the regulators? This country is in deep shit( can i say that)We have to reorganize our economic priorities and stop allowing the pyramid to become steeper

2008 Jul 13 04:50 PM

[PoorRich:]

Please take a look at the dire predictions coming from a former GAO head at the PGPF website: www.pgpf.org/

Yep, deep doo-doo, and if we don't solve these problems quickly our kids better brush up on their Mandarin, 'cause that's who's going to be running America. We're handing it to the Chinese on a platter!

2008 Jul 15 10:45 AM