FDIC: Insurance Fund Could Be Insolvent This Year

The chairwomen of the FDIC, Sheila Bair, has said that the FDIC fund could be insolvent this year unless additional funds are raised. As a result, the FDIC approved emergency fees to be funded by member banks to help rebuild the fund. The fund dropped to $18.9B in the fourth quarter, a drop of $16B from the previous quarter.

The new fees are anticipated to generate some $27B for the insurance fund. Various individuals and analysts over the past few months have put the number of banks which could fail this year at 500-1000. There were 25 bank failures last year, and some 16 or so thus far this year, with a wave of others expected over the coming months.

The fees imposed by the FDIC are being hotly contested and opposed by most of the member banks as the fees represent a majority or all of the profits expected in 2009. If that is the case, then the FDIC-imposed fee would seem to be absorbing money which some of these banks could otherwise be using to help free up credit and lending.

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