Yesterday the big story was the FDIC’s request for prepayment of three year’s worth of fees by member banks to shore up its dwindling reserves. Don’t panic. The FDIC is still secure. You don’t need to close your accounts or rush to the bank to withdraw your money.
The FDIC Has a Treasury Credit Line
According to NPR, the FDIC has a $100 billion credit line from Treasury that it can draw on if its own funds run out. Then it can ask for the Treasury Secretary for an extra $400 billion if necessary.
Banks Have Ample Reserves
According to NPR, some banks are upset about this request because they believe it could weaken already weak banks. However, there is also $800 billion in unused capital sitting in the Federal Reserve. A mere $45 billion of that will be used to shore up the FDIC. This helps the FDIC avoid a “bail-out” and ensures it has enough money to rescue the banks it expects to fail in the future.
No, They Won’t Warn You of Impending Failure
A friend of mine was very upset when Washington Mutual was seized without warning. She felt she should have been warned so she could take her money out. But warnings and fears are exactly what causes banks to collapse. By keeping the information secret until the bank is seized, the FDIC avoids the run on the bank that results in people losing their money. So far only one bank failure has resulted in a loss of money – IndyMac, and that was a result of a Congressman shooting his mouth off and scaring the public.
This Won’t Crush Banking
Yes, it may hurt already weak banks. Those banks probably would have failed anyway, and can request an exemption from this additional fee. Strong banks can afford to pay. They’ll grumble, but according to NPR they would rather pay than be seen asking for another bailout.
Keep Banking As Usual
Unless you have large amounts of money in a single financial institution, keep banking as usual. If you do have more than the amount of money covered by the FDIC in a single bank, go ahead and split that money up. You should do that anyway.