Friday, April 24, 2009

FDIC, the ‘F’ stands for...

Well, it’s not ‘funding’, anyway.

While the financial problems facing the Federal Deposit Insurance Corporation (FDIC) have been apparent for some time, this chart is still striking.

FDIC chart of Deposit Insurance Fund Reserve ratio
That’s the Deposit Insurance Fund Reserve ratio released on Wednesday in FDIC’s Q4 2008 banking profile. It fell 36 basis points to 0.40 per cent in the period, the lowest since June 30, 1993 when it was 0.28 per cent. But, as we noted before the Q4 2008 ratio doesn’t cover the extra liabilities from the US government’s Autumn 2008 move to boost the FDIC insurance limit from $100,000 to $250,000 per depositor per bank.

Here’s the footnote from page 16 of the report:

The Emergency Economic Stabilization Act of 2008 directs the FDIC not to consider the temporary coverage increase to $250,000 in setting assessments. Therefore, we do not include the additional insured deposits in calculating the fund reserve ratio, which guides our assessment planning. If Congress were to decide to leave the $250,000 coverage level in place indefinitely, however, it would be necessary to account for the increase in insured deposits to determine the appropriate level of the fund.

Including the additional liabilities of the $250,000 level would probably make that reserve ratio go much lower — possibly even into negative territory.

While FDIC won’t go bankrupt (the US Treasury will recapitalise it) the meagreness of that reserve ratio in the face of what are likely to be significantly more bank failures this year, suggests the organisation is underfunded and will require additional capital at some point. FDIC’s borrowing authority from the US Treasury was limited at $30bn, but that’s since been uncapped as part of, you guessed it, the Emergency Economic Stabilization Act.

No comments: