So in addition to the $700 billion bailout for banks, tens of billions each for Citi, Bank of America, and AIG, and trillions of money from the Federal Reserve to god know who, now the US government is talking about giving/loaning $500 billion to the FDIC to shore up its deposit insurance fund.
So let me get this straight. Banks pay an assessment (aka insurance premium) on all deposits, and the assessment is based on institution risk. Overall, the average assessment looks in the range of 1% to 1.5% of insured deposits. So banks pay this amount, and then feds guarantee the deposits in the event the bank fails, so that customers aren’t wiped out, or so that customers don’t think they’ll be wiped out and cause a run on the bank, and then get wiped out.
In some ways, consumers are the ones that reap the ultimate benefit of FDIC insurance, but banks also benefit in that they get to take more risks with depositors’ money in search of profit than if they had to assure customers that they would have access to their money at any time without any deposit protections. So while both banks and consumers benefit from deposit insurance, banks are the ones that make the decisions that put deposits at risk; and the FDIC insurance premium depends on the banks capitalization and other factors.
So now that lots of banks are failing, the deposit insurance fund is dwindling, and Senator Dodd (D-Iowa temporarily lol but typically D-CO/Banks) wants to use taxpayer money to subsidize the insurance fund (through a “loan”).
I say fuck that. If skydiving and knife-fighting became all the rage among the American citizenry, resulting in massive injuries and virually bankrupting the health insurance industry, there would be no bailout. The health insurance industry would have to adjust, and quickly. You want to skydive and get stabbed? Great! You premium is now 300% more expensive. Thanks for calling Blue Cross Blue Shield!
So for banks…oh you want to leverage your deposits 12 to 1 and take massive risks and give loans to people that lie about their income and not bother to check it? Great. You probably need to pay higher FDIC premiums you greedy jack-asses! Thanks for calling the FDIC!
But apparently that’s not how it works. People with preexisting conditions and proclivities towards skydiving have to pay for their risk for health/life insurance, but banks don’t. Surely we don’t want to impose costs that hurt businesses! Even if they’ve self-destructed and the entire US banking system is basically insolvent because of liberal lending and capitalization.
So on top of everything else in the ballooning deficit (some of it good, if it stimulates the economy), does the federal government really need to be loaning money to banks for FDIC insurance that it might not get back? The banks have demonstrated that they will take risks to earn a profit, and at some point in this string of bailouts it has to be shown that those risks have consequences. No one complained when the market was booming, but now the party’s over. Banks have no one to blame but themselves. If the fund isn’t keeping up with the demand to cover deposit losses for failed banks, then the FDIC needs to raise the fee charged to banks to reflect the actual risk of insuring a banks deposits.
