How Over-Extended is FDIC Insurance ?
Very.
At least, that’s according to Rolfe Winkler’s analysis of the Depositor Insurance reserve ratio:
>
Rolfe:
[Look at] FDIC’s 12/31/08 balance sheet. Note at the bottom of that link the estimate for total insured deposits: from Q3 to Q4 it increased only a smidge, to $4.8 trillion from $4.6 trillion. Odd, no? Why such a small increase even though FDIC dialed up deposit insurance limits so significantly during Q4? FDIC Senior Banking Analyst Ross Waldrop told me during an interview last week that it’s because so-called “temporary” increases in deposit insurance are excluded. If included, these would boost total insured deposits from $4.8 trillion to $6.2 trillion.
FDIC’s total commitments would increase an additional $224 billion to $6.4 trillion if you include debt issued prior to the new year under FDIC’s “Temporary” Liquidity Guarantee Program.*
In early October, FDIC boosted deposit insurance limits for individual non-retirement accounts to $250k, which, according to Waldrop, added $713 bilion to total insured deposits. He also noted that new insurance on non-interest bearing transaction accounts added $684 billion to the total.
Shorter version: A trillion and a half in additional guarantees should have a whole lot more in reserves.
>
Source:
FDIC’s Insurance Commitments 34% Higher Than Reported
Rolfe Winkler
Option Armageddon, April 6, 2009 – 4:00 am
http://optionarmageddon.ml-implode.com/2009/04/06/fdics-insurance-commitments-34-higher-than-reported/
April 6th, 2009 at 11:57 am
FDIC has always been a scheme to prop up depositor confidence, not to effectively insure the actual deposits. It’s amazing to me anyone ever believed otherwise.
Another Depression-era “fix” going up in smoke.
April 6th, 2009 at 12:09 pm
Graphite says it right re: FDIC
past that, I think it’s telling that SarbOx doesn’t apply to ‘gov’t', quasi-, or otherwise, Agencies..
or, in case I’m wrong: paging Mr. Holder to the White Courtesy Phone…
Holder, what a name for an AG–Central Casting outdid themselves on that one.
http://www.thefreedictionary.com/bag
def. 2 #1
April 6th, 2009 at 12:35 pm
The FDIC is supposed to be insurance for deposits not bondholders. Is it breaking the law if their money is used for purposes not intended?
BTW looks like there’s the possibility of a turnaround/reversal in the daily trend of the S&P. A close below 822.92 would cause this reversal. My .02
April 6th, 2009 at 12:37 pm
Six bits
+
Woolen stocking
+
Sealy Postur-pedic
=
Sweet Dreams
In really bad downturns, oddly enough,
The poor get creamed the least.
Nothing from nothing = 0
April 6th, 2009 at 12:39 pm
Graphite,
Talk to an insurance actuary and ask them if the company effectively insures the actual policyholders. It all depends on your definition of “effectively.” FDIC exists to stop cascading events by dealing with the initial bank failure, so that it is unnecessary to insure every dollar that’s deposited.
If it was necessary to do the above, then FDIC would need a dollar for every dollar on deposit.
April 6th, 2009 at 12:47 pm
TLGP is backed by a separate fund than the DIF. And as of April 1, TLGP debt carries a surcharge that is paid into the DIF.
And remember when a bank fails, the DIF is only used for the net cost of (deposits – value of assets). This can be zero to a large number, depending on the quality of the assets at the bank.
~~~
BR: You are working with out-dated data — see this
April 6th, 2009 at 1:03 pm
franklin,
that’s how it’s Sold, is it?
If you explained that to the ‘cained peep this evening, the e-Bank Runs would start before you left the lectern..
and this: “If it was necessary to do the above, then FDIC would need a dollar for every dollar on deposit.”
is, just, totally untrue.
April 6th, 2009 at 1:10 pm
LB has no Insurance, of any kind – other than SIPC.
For the rest, we perceive its true value to be zero.
Mark: I really like your ” ‘cained peep ” construct.
Much truth lies therein.
April 6th, 2009 at 1:26 pm
Mark,
Since when does the average person think anything about anything? Sorry, I don’t count thinking about the Final Four as thinking about something!
Anyway, there aren’t many insurance companies that can simply print more capital should their reserves run dangerously low.
April 6th, 2009 at 1:30 pm
its just me?
what the F** big deal if FDIC does not have enough reserve….dont they have a tunnel to the FED, who have the printing press.
FED to depositer: you need dollar right, how much??
and its not even inflationary(unless my small econ mind is still fuzzy)…they are replacing something destroyed with something printed.
i would like to know if i am totally missing the big picture??
April 6th, 2009 at 1:36 pm
Maybe some adult in charge should finally admit that the ‘recapitalize the banks’ approach is a dumb and very expensive idea and that, instead, maybe we ought to be saving some dry powder for the FDIC, bailing out pension plans, bailing out BK local and state governments and for the huge aid that will be needed for the unemployed, the unhoused and the unfed.
April 6th, 2009 at 1:36 pm
“FDIC exists to stop cascading events by dealing with the initial bank failure, so that it is unnecessary to insure every dollar that’s deposited” .. hum another reason (from a system pov) for not saving but to push balanced debtor status … but retirement, injury and other life changes is the trick for individuals and family coorperations
April 6th, 2009 at 1:48 pm
franklin,
the snoot you cock to the ‘cained peep is truly telling, of your own limited experience/extreme self-doubt..
you seem to think ~90+% of the People walking around are, mere, Cattle for you to Bell.
My friend, for a change, you should start Thinking. If you don’t believe me, and, be sure, do not, be an experimentalist–go to the local bar and have a convo re: the Economy. I’ll lay you odds, you pick, on any wager, you’d be surprised..
and, with this type of statement: “Anyway, there aren’t many insurance companies that can simply print more capital should their reserves run dangerously low.”
“…print more capital …”
you should wonder where, exactly, the Ignorance lies.
If one could do, as you suggest, Bangledesh wouldn’t be the 4th-World cataclysm that it is, and has been since it stopped being E. Pakistan..
~~
lb,
I’m glad you get that about ‘cained peep, there’s a big difference between self-fueled delusion and stump-humpin’ stupid..
April 6th, 2009 at 1:55 pm
wally Says: April 6th, 2009 at 1:36 pm
the ‘Adults’, in charge, are there to complete the task of looting the Country.
to do as you suggest would be contra to the design, and, therefore, will not happen.
and, to your point about the un-housed, un-fed–ask yourself: “What has 44 said/done in respect to the ‘tent cities’ that are growing in #?”
~~
Greg,
to your point, you might want to study the finer points of ’self-insurance’ and HSAs
April 6th, 2009 at 2:03 pm
Barry wrote: “… A trillion and a half in additional guarantees should have a whole lot more in reserves.”
Seems very much like AIG FP to me…
April 6th, 2009 at 2:12 pm
sorry for double post, but wanted to know what i am missing?
————————————————————————————-
what the F** big deal if FDIC does not have enough reserve….dont they have a tunnel to the FED, who have the printing press.
FED to depositer: you need dollar right, how much??
and its not even inflationary(unless my small econ mind is still fuzzy)…they are replacing something destroyed with something printed.
i would like to know if i am totally missing the big picture??
April 6th, 2009 at 2:13 pm
Well, got back from the lunch…this guy will be the governor in two years…
Sat with my banker…I posted a few weeks ago about the increase in FDIC for his bank…well, the increase is now at the upper end of what I posted a month ago…1.8 million dollars for 2009…for a very well run bank with no bailout money…
47k 2007
180k 2008
1.8 million 2009..slightly more (15%) deposits than 2007..
…I think I see where the inflation is occuring….
April 6th, 2009 at 2:14 pm
Mark….can you elaborate a bit on below…i am kind of curious to the E.Pakistan reference?
Bangledesh wouldn’t be the 4th-World cataclysm that it is, and has been since it stopped being E. Pakistan..
April 6th, 2009 at 2:17 pm
techy,
this: http://www.storyofpakistan.com/articletext.asp?artid=A070
gets to it
April 6th, 2009 at 2:24 pm
Rajesh
You are incorrect about the TLGP being separate from the DIF — The FDIC merged the two in March. (Their Press Release is here).
Also, the fees collected are inconsequential compared to the liabilities absorbed, especially when you consider the issuers are all insolvent. There’s no way FDIC is charging enough to compensate adequately for the risk being taken.
But that’s the whole point, of course. If the borrowers were actually forced to pay market prices to place debt, none of them could.
-Rolfe
April 6th, 2009 at 2:33 pm
Just wondering if you have seen Karl Denningers recent post it is very good…
http://market-ticker.org/authors/2-Karl-Denninger
April 6th, 2009 at 3:25 pm
“study the finer points of ’self-insurance’” something like owning multiple paths to prosperity that one business with profits can buy services from another business under its own umbrella .. AccPay to its own supplier of service/product. Thus capturing more all-markets share. Benefit is spending captured profits from the consumers to own more of the all-markets .. perks and taxable profit spent legally = money in the pocket. I’d like to have the ability to super-compute a mega-chain and newspaper inserts or tv ads or maybe retreats say a Super*Mart convention.
But I know what ya really meant.
April 6th, 2009 at 3:45 pm
Hi Bar,
Why should they have any reserves other than to pay beaurocrats to count and guard them,
and to furnish material for academics like yourself and Rolfe?
How much reserves would be enough according to the latest academic theoretical research?
Would printing enough money to reach some arbitrary threshold derived from non stake holders count as green jobs?
April 6th, 2009 at 4:02 pm
This whole discussion is a bit misguided. According to a FDIC letter, they run an unlimited-liability self-insurance scheme for all their members, and they can “assess” (take as “fees”) the whole capital of all member banks to pay back depositors:
http://www.fdic.gov/news/news/press/2008/pr08084.html
«As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments.» «The FDIC receives no federal tax dollars – insured financial institutions fund its operations.»
In other words that all the institutions whose deposits insured by it have unlimited liability to the FDIC, which has been set up as a depository institution self-insurance pool. Treasury loans are provided
only as working capital, to bridge the gap until the payments made by the FDIC are *fully* recovered from the capital of depository institutions (down to the last cent of that capital).
I don’t think there is any provision as to what happens if the losses to depositors are greater than the combined capital of all FDIC members. But it seems pretty clear that in practice the FDIC is backstopped not just by the whole capital of all its members, but also by the State.
And in any case the idea that a large part or all the capital of all solvent banks can be “assessed” by the FDIC before the State backstops the rest to pay off the depositors of insolvent banks is politically ludicrous, even if that seems to be the law. Congress would provide public funds well before all the capital of all FDIC members is wiped out.
Which may happen yet — according to the FDIC that capital is $1.3t and aggregate losses may well approach or top that…
April 6th, 2009 at 4:19 pm
Didn’t the FDIC severely reduce their fees in 1996 because risk was seen as diminished?
April 6th, 2009 at 10:58 pm
Slightly OT, but still… from the wsj.com
Today in Bailouts and Financial Rescues
Stress Test: Regulators plan to meet early this week to discuss how to analyze the results of stress tests / being conducted on the country’s 19 largest banks. [WSJ]
They are going to talk about how to do this? They didn’t know before they started? My confidence ebbs daily.
April 6th, 2009 at 10:59 pm
Oops – meant to take the bold off after “results”
sorry