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J.P. Morgan Chase is picking up the pieces again. The full story is
at http://online.wsj.com/article/SB122238415586576687.html
Also, check out the Bloomberg article today in which it's predicted
that "about 100 U.S. banks with collective assets of more than $800
billion will fail" by the end of 2009. FDIC may be the next bail-out
on the horizon, looking for $150 billion. This article is at
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=amZxIbcjZISU
The FDIC responded tonight with the following press release. What
Bloomberg calls a bailout, the FDIC calls a "line of credit with the
Treasury Department." Either way, it means the feds will issue more
debt and it's not leaving me feeling warm and fuzzy.
"Open Letter to Bloomberg News about FDIC Deposit Insurance Fund
FOR IMMEDIATE RELEASE
September 25, 2008
Media Contact:
Andrew Gray (202-898-7192)
Mr. John McCorry
Executive Editor
Bloomberg News
Dear Mr. McCorry:
Bloomberg reporter David Evans' piece ("FDIC May Need $150
Billion Bailout as Local Bank Failures Mount," Sept. 25) does
a serious disservice to your organization and your readers by
painting a skewed picture of the FDIC insurance fund. Let me
be clear: The insurance fund is in a strong financial position
to weather a significant upsurge in bank failures. The FDIC
has all the tools and resources necessary to meet our
commitment to insured depositors, which we view as sacred. I
do not foresee – as Mr. Evans suggests – that taxpayers may
have to foot the bill for a "bailout."
Let's look at the real facts about the FDIC insurance fund.
The fund's current balance is $45 billion – but that figure is
not static. The fund will continue to incur the cost of
protecting insured depositors as more banks may fail, but we
continually bring in more premium income. We will propose
raising bank premiums in the coming weeks to ensure that the
fund remains strong. And, at the same time, we will propose
higher premiums on higher risk activity to create economic
incentives for poorly managed banks to change their risk
profiles. The fund is 100 percent industry-backed. Our
ability to raise premiums essentially means that the capital
of the entire banking industry – that's $1.3 trillion – is
available for support.
Moreover, if needed, the FDIC has longstanding lines of credit
with the Treasury Department. Congress, understanding the
need to ensure that working capital is available to the FDIC
to provide bridge funding between the time a bank fails and
when its assets are sold, provided broad authority for us to
borrow from Treasury's Federal Financing Bank. If necessary,
we can potentially raise very large sums of working capital,
which would be paid back as the FDIC liquidates assets of
failed banks. As per our authorizing statute, any money we
might borrow from the Treasury must be paid back from industry
assessments. Only once in the FDIC's history have we had to
borrow from the Treasury – in the early 1990s – and that money
was paid back with interest in less than two years.
Finally, Mr. Evans' suggestion that the "government" could
ever be "on the hook for uninsured deposits" demonstrates a
misunderstanding of FDIC insurance. To protect taxpayers, we
are required to follow the "least cost" resolution, which
means that uninsured depositors are paid in full only if this
is the least costly option for the FDIC. This usually occurs
when a bidder for the failed bank is willing to pay a higher
price for the entire deposit franchise. We are authorized to
deviate from the "least cost" resolution only where a
so-called "systemic risk" exception is made. This is an
extraordinary procedure which we have never invoked. And
again, any money we borrow from the Treasury Department must
be repaid through industry assessments.
I am confident in the strength of the FDIC's resources to make
good on our sacred pledge to insured depositors. And,
remember, no depositor has ever lost a penny of insured
deposits, and never will.
Andrew Gray
Director
Office of Public Affairs
Federal Deposit Insurance Corporation"
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