Fallout: The Financial Crisis

FDIC raises rates due to bank failures

Marketplace Staff Feb 27, 2009
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Fallout: The Financial Crisis

FDIC raises rates due to bank failures

Marketplace Staff Feb 27, 2009
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TEXT OF STORY

Kai Ryssdal: Mark this one down in the column labeled — yet another small but troubling signal of banking problems. Today the Federal Deposit Insurance Corporation raised its rates. That is, the FDIC increased the premiums it charges banks for the deposit insurance that they’re required to carry. That’s the insurance that covers you up to $250,000 if your bank fails. Like mine did, actually. The agency also imposed a one-time emergency assessment to cover mounting losses from bank failures. The FDIC has shut down 14 banks so far this year and sold off what’s left to healthier financial institutions.

Marketplace’s Mitchell Hartman reports on one of the latest — Silver Falls Bank outside of Portland, Ore.


Mitchell Hartman: Lark Wysham chairs the Oregon Bankers Association. Last week, she and her staff at Citizens Bank of Corvallis were invited to bid on rival Silver Falls Bank. The FDIC had told them it was about to fail.

Lark Wysham: So the bid process is through a secure website. There are times in which you can actually go into the bank and do due diligence.

Citizens Bank got $100 million in deposits, plus three local branches. The FDIC got the rest.

Wysham: So any other liability other than deposits that the bank had, any troubled loans that they may have to take a loss on, that’s their anticipated price to the insurance fund.

The FDIC’s hit for Silver Falls: $50 million. It’s chump change in the grand scheme of things. But, some recent bank failures have been huge — IndyMac alone cost nearly $11 billion. The FDIC says it’ll need $65 billion to cover bank failures over the next 4 years. Which is why it’s hiking insurance premiums on the banks that are left. Some bankers say the FDIC should tap into Treasury funds instead. But Finance professor Stuart Greenbaum of Washington University says, that’s the wrong way to go.

Stuart Greenbaum: It’s true that in the last analysis the government ends up being the guarantor. But there’s no reason why the bank shareholders shouldn’t make some contribution to the insurance.

It won’t be just bank shareholders; we can all expect to pay a little more for FDIC peace of mind through higher banking fees.

I’m Mitchell Hartman for Marketplace.

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