The FDIC: This Time It’s Real
Nov 30, 2009
Posted by Jody Eisenman | Filed under Uncategorized
Readers of this blog already know that the FDIC has been running out of reserves due to the high number of bank failures. As I wrote back in September, the FDIC was down its’ last 10 billion in reserves. With the failure of fifty more banks in the third quarter (the most in 17 years) and 552 banks on the FDIC watch list, that cash has now disappeared.
According to bank accounting, one must reserve funds in the event of loan losses, or in the case of the books of the FDIC, bank failure. When you more the money to the reserve for bad debts (in this case future bank failures), you actually decrease your cash levels from an accounting standpoint. Thus, even though the FDIC still has cash, their actual financial statements now show a balance of negative $8.2 billion. This is a drop of over $18 billion since the second quarter. With 7% of all US banks on the governments’ problem list, it is incredibly likely that these writeoffs will continue for the immediate future. Therefore, the problem of how to replenish the reserves at the FDIC still exist. I refer my readers to the blog post above for possible solutions.
November 30th, 2009 at 8:36 pm
So, what would be best solution for this matter? More money coming out of our pocket or keep on printing money like what the Federal Reserve is doing right now and ultimately devaluing our dollar to nothing?