September 28, 2009

Is the FDIC Going to Run Out of Money?

It shouldn't be a secret that more banks have been failing lately. I've seen some news lately raising concern about the deposit balance of the FDIC and worrying that the FDIC will run out of money. It seems that people think that the FDIC is about to crumble and that all our insured money will be in jeopardy.

Is the FDIC going to run out of money? Right now the FDIC has about $10B in it's reserve. With the number of 'problem' banks right now and the potential losses from their assets if they fail it is possible the FDIC could run out of funds.

But if the FDIC runs out of money that doesn't mean that the FDIC will evaporate or that the guarantee on your bank held savings is going to go away. The FDIC is backed by the United States government. If the FDIC deposits ran low then they could look to the government for aid. It is a given that the government would do what is required to keep the FDIC solvent.

Should you be concerned that the FDIC is running low on funds?

Well let me ask you this, were you concerned in 1991 when the FDIC ran out of money? You may not have even remember or noticed at the time that it happened, but it did.

If you look back at the FDIC data for previous years then you can see that the situation was a lot worse in 1991.

Lets compare the data for 2009 (year to date as of June 30) to 1991:

2009 YTD 1991
Fund balance $10.40 ($6.9)
Total # banks 6,995 11,921
problem banks 416 1,430
Assets of problem banks $300 $837
Failed banks 45 268
Assets failed banks $35.80 $143.40
problem banks as % whole 5.9% 12.0%
failed banks % whole 0.6% 2.2%

As you can see in just about every way, the situation was worse back in 1991 than it is today.

If the FDIC didn't crumble in 1991 then it isn't likely to crumble today either.

It certainly isn't a good thing that there are more banks are failing lately and that the FDIC reserve is dropping, neither are a sign of the imminent doom of the FDIC.

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