FDIC’s “Insurance Fund” Myth – By Bill Issac – former FDIC Chairman

The FDIC’s “Insurance Fund” Myth

By: Vernon Hill   Thursday, September 11, 2008 10:02 AM

When FDIC head Shelia Bair says her agency might have to bolster the FDIC’s insurance fund with Treasury borrowings to pay for the new spate of bank failures, a lot of us, this 40-year banking veteran included, assumed there’s an actual FDIC fund in need of bolstering.We were wrong. As a former FDIC chairman, Bill Isaac, points out here, the FDIC Insurance Fund is an accounting fiction. It takes in premiums from banks, then turns those premiums over to the Treasury, which adds the money to the government’s general coffers for “spending . . . on missiles, school lunches, water projects, and the like.”

The insurance premiums aren’t really premiums at all, therefore. They’re a tax by another name.

Actually, it’s worse than that. The FDIC, persisting in the myth that its fund really is an insurance pool, now proposes to raise the “premiums” it charges banks to make up for the “fund’s” coming shortfall. The financially weakest banks will be hit with the biggest tax hikes.

Which makes absolutely no sense. You don’t need me to tell you the banking industry is on the ropes. The last thing it needs (or the economy needs, for that matter) is an expense hike that will inhibit banks’ ability to rebuild capital, extend new loans, or both. If the FDIC wants to raise its bank tax once the industry has recovered, I suppose that’s fine. But to raise taxes on the industry now is perhaps the dumbest thing the agency can possibly do. At the margin, the FDIC will be helping bring about more of the failures it says it wants to prevent.

But this is the government we’re talking about, so logic goes out the window. First, the FDIC insists its mythical bank insurance fund exists, when it really doesn’t. Then the agency does what it can to run the imaginary fund’s finances straight into the ground. Your tax dollars (sorry, “premiums”) at work. . . .


Obama’s Irrelevant FDIC Suggestion – “and the price of tea in China is?”

Obama Panders To The Press – No Bailout Solutions Offered – His Lone Suggestion is Irrelevant

Barack, of course you know this is just more spin – By the way your suggestion isn’t new, it was first suggested 5 years ago, but it didn’t pass because Democrats said it would only help “Rich Republicans”.

I’m all for an increase in the amount insured in a single  FDIC account – SO IS EVERYONE ELSE

What would Barack’s suggested change do to help the current problem? – nothing – and Barack – you sly thing you – you already know that.

What do we do now? – I split the $250,000 up into 3 different accounts at three different banks – so that all of the money is insured – everyone does this. Barack – with that Harvard education of yours and all that “book deal money” you know that too – if you don’t you sure as hell don’t belong in the White House. All your suggested change does is make it more convenient for me to do my banking. I can simply keep my money in one account rather than 3.  

How does your suggestion help solve the Banking or Finance Crisis – It doesn’t, and Barack, you already know that this suggestion will do nothing to resolve the issues. Instead of putting that icredible intellect they keep talking about to use – you are just playing politics and mouthing sound bites.

Your solution does nothing about the “bad debt” the banks hold from the bogus mortgage loans that you support. It does nothing to prevent a repeat of this crisis. YOUR SUGGESTION IS SIMPLY IRRELEVANT.

ADDITIONAL ARTICLE: Bill Isaac’s, Former FDIC Chairman expalins how the FDIC Insurance Fund is an Accounting Myth – How this proposal is a tax increase in disguise. https://mcauleysworld.wordpress.com/2008/10/02/fdic-deposit-increase-just-another-tax-increase-says-bill-isaac-former-fdic-chairman/ 

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