Bank Deposit Insurance Could Go Broke

[Ron61]

Ray,

Any insight that you could give us on this? It seem to me that by publishing it they could start a run on banks as people will want to get their money out.

http://news.yahoo.com/s/afp/20090305...wzSXCLyq2yBhIF

Ron

[Scott S]

My small town bank (Silver Falls Bank) went broke two weeks ago and the FDIC stepped in to insure the funds with $50 million.

Anybody want some $40 stock for .26 cents a share? I got plenty for sale....

What I don't understand is while the FDIC put up money to insure the accounts not one account failed, another bank bought up all the assets and the bank reopened the next day under a new name.

What happened to the 50 million?

Scott S

[Wes Tausend]

Originally Posted by Scott S

My small town bank (Silver Falls Bank) went broke two weeks ago and the FDIC stepped in to insure the funds with $50 million.

Anybody want some $40 stock for .26 cents a share? I got plenty for sale....

What I don't understand is while the FDIC put up money to insure the accounts not one account failed, another bank bought up all the assets and the bank reopened the next day under a new name.

What happened to the 50 million?

Scott S

I think it's something like,"Ok, fill this sack and nobody gets hurt". Only somebody gets hurt.

Wes

...

[Ron61]

Scott,

That is what they are saying is that the FDIC is going to run out of money to insure the accounts. And if that is so, then they could very well start a run on the banks which is one thing that they don't want.

Also, since another bank bought the assets didn't you get some stock for that which you owned in the failed bank? It seems that you should have gotten some stock even if it wasn't much due to the new banks stock being worth more. This whole banking mess from Washington and Wall Street down has been a nightmare and I fear will get worse.

Ron

[cobra de capell]

Originally Posted by Ron61

Ray,
Any insight that you could give us on this? It seem to me that by publishing it they could start a run on banks as people will want to get their money out.
http://news.yahoo.com/s/afp/20090305...wzSXCLyq2yBhIF
Ron

Think about this - at the end of 2007 the FDIC balance sheet indicated a reserve balance of just over $53 Billion. At year-end 2008, the FDIC reserve was $19 Billion. YIKES!

There are two important facts to note about the balance sheet.

First, as of December 31st (2007), the FDIC only anticipated losses of insured institutions to amount to $124 million in 2008.

Second, about $19.0 billion of their assets are held in U.S. Treasury securities and mostly at face value. Two questions arise. What is the market value of those securities today? What might the market value of those securities be if they lose their AAA rating?

Thus, it should be apparent that if additional financial institutions go under, the staff of the FDIC will be swamped and their reserves will be significantly reduced, particularly, if another large institution fails. It should not be forgotten that many of these financial institutions are interwoven into a financial web. When one part of the web is torn, it affects the entire structure.

The FDIC is in big trouble - we just may be doomed.

On the other hand, just think what would happen if the FDIC was not able to pay out deposit balances when necessary - therefore, if the FDIC goes south, America goes south. Unfortunately, with what is happening - that scenario becomes a possible reality.

By the way, the FDIC has a $100 Billion line of credit with the Federal Reserve and the Federal Reserve, along with the Treasury Department can simply print more money to take care of this short term.

Long-term, US Currency is in the dumper and with all the Obama 'stimulus' money - money that we don't have also going into circulation - look for hyper-inflation in the near future......I'm thinking that this may be a perfect storm, just like in the movie and you know what happened in the movie.

[cobra de capell]

Originally Posted by Scott S

My small town bank (Silver Falls Bank) went broke two weeks ago and the FDIC stepped in to insure the funds with $50 million.

Anybody want some $40 stock for .26 cents a share? I got plenty for sale....

What I don't understand is while the FDIC put up money to insure the accounts not one account failed, another bank bought up all the assets and the bank reopened the next day under a new name.

What happened to the 50 million?

Scott S

Scott

Actually, Silver Falls Bank, of Silverton, Oregon, had $131.4 million in assets and $116.3 million in deposits, as of Feb. 9 - therefore, they had only $15.1 in capital. The $50 million that you noted is the estimated cost to the FDIC covering the liquidation of assets that were not purchased by Citizens Bank of Corvallis (purchased only $13 Million in assets).

Therefore, the FDIC is stating that $103 Million in asset all require $50 million is FDIC funds to liquidate - an astounding percentage. Liquidate means primarily charging off loans and selling securities.

[twobjshelbys]

The FDIC is an insurance pool. Banks pay into it. The insurance was taken out to pay the depositors for failure of isolated bank failures, not for the collapse of the entire financial system.

[cobra de capell]

Originally Posted by twobjshelbys

The FDIC is an insurance pool. Banks pay into it. The insurance was taken out to pay the depositors for failure of isolated bank failures, not for the collapse of the entire financial system.

BINGO, but most people out there think and feel that the FDIC can handle all bank failures - although that's not the case. One cannot blame them with "insurance" normally covering 100% of all events - for example in the case of Katrina, etc. The 'big' event - the perfect financial storm has America going down, big time - because in reality, there isn't any insurance other than a few billion compared to trillions and trillions in assets within the banking world.

[Dan40]

As I understand the FDIC, it has always had only a small percentage of its liability funded at any time. There has never been a discussion to fully fund it. And I think it is supposed to garner major funding from the liquidated assets of failed banks. Probably another political pipe dream. And back in the saving and loan scandal didn't a major portion of the depositors have to wait until the Resolution Trust liquidated everything before they got their "insured" deposits. Some waited years [at ZERO interest] to get up to $100,000. of the principle back.
Not an insurance policy you would go out and buy on your own. Another example of, "I'm from the Government and I'm here to help you!!!!"

Dan

[cobra de capell]

Originally Posted by Dan40

As I understand the FDIC, it has always had only a small percentage of its liability funded at any time. There has never been a discussion to fully fund it. And I think it is supposed to garner major funding from the liquidated assets of failed banks. Probably another political pipe dream. And back in the saving and loan scandal didn't a major portion of the depositors have to wait until the Resolution Trust liquidated everything before they got their "insured" deposits. Some waited years [at ZERO interest] to get up to $100,000. of the principle back.
Not an insurance policy you would go out and buy on your own. Another example of, "I'm from the Government and I'm here to help you!!!!"

Dan

Actually, no one ever had to wait more than a few weeks, as long as they were within the $100,000 limit. Those that had to wait were over the $100,000 limit with some of them still waiting. Even if accrued interest brought the total deposit over $100K, that accrued interest is not paid out until the FDIC is able to sort through assets, sell those asset or get people to pay off those assets (loans). That's why you see $99,000 CD's advertised.

True, the FDIC only maintains a really small portion as a reserve.

garner major funding from the liquidated assets Hopefully, that was never the case - basically, when a bank is closed the FDIC takes over 100% of the 'assets' - assets in the banking world are loans, investments, cash, FF&E, etc. - it's doubtful that the selling of assets will produce a gain, normally that selling activity produces a loss to the FDIC.

[Dan40]

Originally Posted by cobra de capell

Actually, no one ever had to wait more than a few weeks, as long as they were within the $100,000 limit. Those that had to wait were over the $100,000 limit with some of them still waiting. Even if accrued interest brought the total deposit over $100K, that accrued interest is not paid out until the FDIC is able to sort through assets, sell those asset or get people to pay off those assets (loans). That's why you see $99,000 CD's advertised.

True, the FDIC only maintains a really small portion as a reserve.

garner major funding from the liquidated assets Hopefully, that was never the case - basically, when a bank is closed the FDIC takes over 100% of the 'assets' - assets in the banking world are loans, investments, cash, FF&E, etc. - it's doubtful that the selling of assets will produce a gain, normally that selling activity produces a loss to the FDIC.

Well that sounds like politicians planning to me.

Dan

[cobra de capell]

True - the FDIC is really all smoke and mirrors, for example if B of A or Citi Bank went down, the FDIC would immediately run out of funds and have to look to the Federal General Fund for a huge amount of money - in the trillions. Basically, the FDIC is backed by the full faith and credit of America. Now, since America is practically bankrupt and with Obama basically doubling down on the deficit, we could possibly be all screwed if the banking system is not provided TARP funds in the trillions.

Therefore, if Bank of America or Citi bank go down, American currency will end up practically worthless.

Think, guns and ammo.