The agency that guarantees bank deposits in the United States said today it has no immediate plans to borrow money from the government to bolster its insurance fund, which has shrunk under the weight of collapsing banks.
The fund fell 20 percent to $10.4 billion in the second quarter as U.S. banks overall lost $3.7 billion, the Federal Deposit Insurance Corp. said. That is the fund’s lowest point since 1992 at the height of a crisis involving savings and loan associations. Some analysts have warned that the fund could fall below zero by year’s end.
The FDIC estimates bank failures will cost the fund around $70 billion through 2013. It has slipped to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent.
Asked about a possibility of tapping the Treasury, FDIC Chairwoman Sheila Bair said: “Not at this point in time. I never say `never,’ but not at this point in time, no.”
At the same time, Bair reaffirmed the likelihood of an additional fee on U.S. banks this year to help replenish the fund.
Despite the shrinking insurance fund, customers have nothing to worry about. The FDIC is fully backed by the government, which means depositors’ money is guaranteed up to $250,000 per account. The agency also still has billions in loss reserves apart from the insurance fund.
Still, the FDIC needs to replenish its fund. It can do so by charging banks higher fees or by taking the more radical step of borrowing from the U.S. Treasury.
It also has opened the door wider for private investors to buy failed financial institutions. The FDIC’s board voted Wednesday to reduce the cash that private equity funds must maintain in banks they acquire. (AP)
