Fallout: The Financial Crisis

FDIC seeks cash to cope with shortage

Steve Henn Aug 27, 2009
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Fallout: The Financial Crisis

FDIC seeks cash to cope with shortage

Steve Henn Aug 27, 2009
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TEXT OF INTERVIEW

Bill Radke: The government agency that guarantees you won’t lose your money in a bank failure could use some money itself. The FDIC meets today and it’ll discuss not only its cash shortage, but also new rules to let private-equity firms buy troubled banks. Marketplace’s Steve Henn is with us now live. Good morning Steve.

Steve Henn: Good morning Bill.

Radke: So let’s start with the money shortage. How come the FDIC is broke? Not broke, just low on money.

Henn: Well you may have heard it’s been a hard year for banks. We’ve talked a lot about the biggest banks in the country, and they all got bailouts. Many of them have returned to raking in the cash. But for many of the smaller banks around America, it’s been a really, really tough year. The recession is hurting them. Almost as many banks failed in July of this year than in all of 2008. So every time the FDIC shuts down another bank that’s underwater, it has to tap into its insurance fund to make sure all those savings accounts and all of those depositors get their money back.

In March, the FDIC had $13 million in its fund. Since then, 60 banks have closed and analysts think it could run out of money by the end of the year.

Radke: So what does that mean for the people who have bank deposits? Are they still backed?

Henn: Yeah, absolutely. If you have a savings account, your money is safe. The FDIC can replenish its insurance fund in two ways. It can borrow money from the U.S. Treasury, and it’s done that once before in the S&L crisis. Or it can raise the fees it charges banks for the insurance. In this case, it’ll probably end up doing both. The FDIC estimates that in the next couple of years, it will need about $70 billion to help pay back all of those deposits, failed banks. So it’s looking for cash everywhere it can find it.

Radke: So is this why the FDIC is encouraging private-equity firms to get into banking?

Henn: Yeah, that’s really it. The FDIC is looking for money everywhere it can find it. Private-equity firms are sitting on about $450 billion in cash, and regulators hope that if they get involved that could help.

Radke: Marketplace’s Steve Henn, thanks a lot.

Henn: Sure thing.

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