Are FDIC Reserves enough?

Discussion in 'Economics' started by PocketChange, Sep 17, 2008.

  1. Seeing that AIG needed an $85B bail out which exceeds the total FDIC depository insurance reserves of $53B it appears FDIC is a joke.

    Reading their annual report they cite three relatively small bank failures were a challenging situation for them in 2007.

    They project contingent liabilities for anticipated failures of insured institutions at only $124 Million!!!

    Their total resolution equity is only $3.6B.

    As of December 31, 2007, there were 77 insured institutions with total assets of $22.2 billion designated as problem institutions for safety and soundness purposes (defined as those institutions having a composite CAMELS2 rating of “4” or “5”), compared to the 51 problem institutions with total assets of $8.5 billion on December 31, 2006.

    Resolving Financial Institution Failures

    During 2007, three FDIC-insured institutions failed. The accompanying chart provides liquidation highlights and trends for the past three years. No federally-insured financial institution failures occurred in either 2005 or 2006.

    Liquidation Highlights 2005 - 2007

    (Dollars in billions)
    2007 2006 2005
    Total Institutions Resolved 3 0 0
    Assets of Resolved Institutions $2.34 $0.00 $0.00
    Net Collections from Assets in Liquidation * $1.25 $0.17 $0.37
    Total Assets in Liquidation * $0.91 $0.35 $0.44
    Total Dividends Paid * $1.65 $0.17 $0.44
    Savings Over Cost of Liquidation # $0.36 $0.00 $0.00

    Metropolitan Savings Bank in Pittsburgh, Pennsylvania, was the first FDIC-insured institution closed since June 2004. This institution was closed by the Pennsylvania Department of Banking on February 2, 2007.

    NetBank of Alpharetta, Georgia, was closed by the Office of Thrift Supervision on September 28, 2007. NetBank was an Internet bank and had no physical branches.

    Miami Valley Bank of Lakeview, Ohio, was closed by the Ohio Superintendent of Financial Institutions on October 4, 2007.

    How small of a run will it take on the banks before they are upside down?
  2. bluedemon77

    bluedemon77 Guest

    This is my main concern about this situation. The dominoes started falling with the sub prime crisis and this is just getting started. I am completely in cash now with most of my money in FDIC insured accounts. But if the entire banking system melts down, which I believe is a distinct possibility, what happens then? The FDIC is either going to default or the government is going to step in and bail them out. But the government is already broke. What happens when the government can't borrow any more from China? Turn on the presses and start paying people off with worthless dollars.

    So the question is, where is the safe haven for my cash? Gold? Real estate will always be worth something, but now doesn't seem like the optimal time to buy. Treasuries don't seem all that safe either if the entire system melts down for the reason I already mentioned before--runaway inflation. What are you all going to do? I'm at a loss.
  3. jd7419


    If the government stopped paying fdic insurance world war 3 would be only a heart beat away.
  4. m22au


    You answered your own question: gold or treasuries.

    Keep in mind that when the govt starts printing money, it will hurt longer dated paper more than short-term paper.

    So even if you are concerned about money printing, you should do OK in t-bills.

  5. m22au


    The govt won't stop paying FDIC insurance.

    They'll just print more money.

    So they'll give "money" with FDIC, and take it away with an inflation tax.