Is the FDIC a member FDIC?

September 25, 2008


You've all heard the end of every bank advertisement say "member FDIC." That's supposed to assure you that if the bank goes under, your money is safe (assuming it's less than $100,000 or whatever limit). But what happens if the FDIC goes under? Well, it would likely be bailed out. But by whom? The taxpayer in the long-run, and who pays that depends upon your assumption of who bears the burden of the national debt.

Here's a Bloomberg story on the FDIC's future:

The FDIC knows which banks are at risk; it has a watch list with 117 institutions. The agency won't disclose their names because doing so could cause depositors to panic and pull out all of their funds.

It won't take many more failures before the FDIC itself runs out of money. The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue.

Regardless of who wins control of the White House and Congress in November, no politician is likely to vote in favor of leaving federally insured depositors out in the cold.

A taxpayer bailout of the FDIC would come on the heels of intervention by the U.S. Treasury Department and Federal Reserve to save investment bank Bear Stearns Cos., mortgage giants Fannie Mae and Freddie Mac and the world's largest insurer, American International Group Inc.

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