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FDIC May Need Additional Funds if Banks Keep Failing

Remaining pool to cover insured deposits may go quickly

September 25, 2008

FDIC, set up during the Great Depression, guarantees individual bank deposits up to $100,000. If an FDIC-insured bank fails, the government makes sure depositors get their money back, up to $100,000.

Lately, FDIC has been writing a lot of checks. After no banks failed in 2005 and 2006, seven went out of business last year. So far this year, 12 more have collapsed. The largest, IndyMac, cost FDIC as much as $30 billion, leaving FDIC with less than $50 billion to handle other bank failures.

That $50 billion could go quickly. Christopher Whalen, managing director of Institutional Risk Analytics, whose business it is to analyze FDIC data, told Bloomberg News that as many as 100 banks, with assets of more than $800 billion, will fail by the end of 2009.

If FDIC were to run out of money, Congress would have no choice but to give the agency more funds, or face a possible insurrection on the part of individual bank depositors, who had been assured their money is safe.

FDIC, meanwhile, is trying to bring consumers up to speed on the agency's role in protecting deposits, with emphasis on what it can do and what it can't do. It's enlisted popular personal finance expert Suze Orman to help deliver the message.

"For 75 years, no one has ever lost a penny of insured deposits," said FDIC Chairman Sheila Bair, "but as with any type of insurance, depositors are responsible for knowing how FDIC coverage works in order to ensure their money is protected. While awareness of the FDIC is high, understanding of deposit insurance is not. We want to encourage people to learn the basics and provide reassurance that, if they are within the coverage limits, their money is 100 percent safe."

A public awareness campaign encourages Americans to visit MyFDICInsurance.gov , a special Web site where they can use an online tool that provides customized information about their insured accounts.

"No one should ever lose a penny of their deposited money, but Americans need to take the time to look at their accounts to ensure they're covered," said Orman.

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