Now-needy FDIC collected little in premiums

[wellst0nev0ter]

Source: Boston Globe

WASHINGTON - The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending.



Read more: http://www.boston.com/news/nation/washington/articles/2009/03/11/now_needy_fdic_collected_little_in_premiums/?page=full?ref=fp1

---

I don't know whether to headdesk, facepalm, or to headdesk and facepalm.

[high density]

1. Now the banks are bitching and moaning that FDIC premiums are going up

Chris Dodd introduced a bill that would lend the FDIC the $500 billion. Bair at the FDIC said she'd be able to cut the new premiums in half with that money... I say screw Dodd's half trillion dollar loan and let the banks pay in the new fees. If you or I make a huge insurance claim, you can be sure that our insurance company, say AIG, is very likely going to raise our rates in retaliation as soon as they can. The banks shouldn't be any different. They've messed up big time, now it's time to pay.

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/03/05/national/w145139S81.DTL

[Celebration]

7. But MOST BANKS WERE RESPONSIBLE

Only the huge conglomerate banks were irresponsible. The community banks were not. And now they are the ones paying with huge premiums, taking away their entire profits for a year or more.

I don't have an answer for this, but please don't tell me that most banks deserve this. They don't!

[Jackpine Radical]

17. Why not do it the way they do it to us?--With actuarial predictions.

There is a whole lot of data available for that. We just look at which independent variables predict bank failure, and assess them on their risk.

Like when life insurance companies charge more if you smoke or whatever.

[Celebration]

24. yeah, well it was the money center banks

Who were the smokers, the gluttons, the sky divers, etc.. A lot of the community banks got exercise and ate organic food.

[high density]

21. The industry should do its best to repair itself from this point forward

If that means the responsible member banks have to pay more into the FDIC to help everybody else, that's fine with me. Higher risk = higher premiums. Maybe this pill will help them realize that more regulation wouldn't be a bad idea to level the playing field between the drunken Citigroups of the nation and the smaller, more responsible community banks.

[Celebration]

23. unfortunately, the community banks have no power

And now they will have less. I just think it is unfortunate. I do feel that it is wrong for them to be painted with the same broad brush, but I can't think of what else to do.

[high density]

26. Well...

The financial industry is in the crapper. That has snowballed into putting the entire world economy on the brink of disaster because our bankers generally got greedy and assumed very abnormal amounts of risk. There's going to be pain for everybody, and that includes banks that may have been more responsible than others. Insurance companies profile you and me when we purchase insurance. It's going to be the same way for the banks now. The industry's collective credit report has a lot of derogatory items on it over the past five years.

[Hannah Bell]

33. this will help the large buy out o otherwise bankrupt the small.

i believe that is the point.

[Celebration]

37. You could be right........................

Unfortunately. Intentional or not, that could be the result.

[Hannah Bell]

38. oh, it's always intentional when policy helps the big guys win. whatever they tell you.

the current bailouts ought to make that beyond debate.

name one thing that's helped small business or workers < $100K in the last 10 years. Hard to think of much.

[DaLittle Kitty]

35. Good Points! NOW Let Us Get On W/ Bailing Out The FDIC BEFORE WE Can Close Down

The Failing Banks.How Fu*ked Up Is THAT? FDIC was supposed to close the banks not meeting fiscal adequacy and now we find out that the stinking FDIC is itself... INSOLVENT relative to risk/need? UnFu*king believable! The stupid congress Dems and REpubs are ALLLL a bunch of FU*KING MORONS!

[WriteDown]

2. I wish any of my debts would decide there's just no need

to collect from me. This is just plain bizarre.

[Igel]

6. No, it's the same reasoning that got pensions in trouble.

In 1995 need to have $1 billion to cover future obligations. Well, gee, you buy stocks. Stock market has a bubble, so what happens? Your $1 billion goes to $3 billion--more than you need.

You stop collecting money since you've marked to market, so to speak. So in 2008 you need to have $3 billion, you have $3 billion, and then the market crashes. Ah. Mark to marekt. You only have $1.2 billion in assets. Oops.

Well, along the way you didn't have any reason at all to raise money. Now that many banks are at best borderline profitable, you'll start collecting money from them.

Pension funds did the same thing. Expect insurance rates to increase.

[Po_d Mainiac]

27. Huh?

They have to mark to the actual going market price.....probably more like 30 cents on the dollar of the face value of the bonds. What the "Masters of the Universe" thunked was worth 3 Billion is more like 400 million. But after the bonuses that figure is now down to 300 million. AND in the spirit of the new banking order, the 3 billion was leveraged against 10 Billion...so now there's a little problem with 10 billion in debt, and only 300 million in the checkbook.

[hay rick]

32. Pensions in New Jersey.

Good article on underfunded pensions and pension bonds here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alwTE0Z5.1EA

An excerpt describing New Jersey"s pension fiasco:

New Jersey Governor Jon Corzine, a former co-chief executive officer of Goldman Sachs, has proposed allowing government pension funds to put off half their pension contributions because of the state’s growing deficit during the recession.

Corzine’s suggestion follows a recent New Jersey pension track record of mistakes. When the state’s pensions were healthy in the 1990s, the state legislature eliminated nearly all of its annual pension contributions for almost a decade, while adding $4.6 billion of benefits.

New Jersey sold $2.75 billion of pension bonds in July 1997. Then-Governor Christine Todd Whitman said at the time that the bonds would save taxpayers $47 billion and make the system fully funded.

“You’d be crazy not to have done this,” Whitman said in a Bloomberg News interview in June 1997. “It’s not a gimmick. This is an ongoing benefit to taxpayers.”

Whitman’s prediction hasn’t held up. While the state pays pension bondholders a fixed 7.64 percent interest rate, the fund has earned 4.8 percent annualized since the bond sale, according to Tom Bell, spokesman for the New Jersey Treasury Department.

‘Outrageous Gimmick’

New Jersey’s pension bonds haven’t saved taxpayers $47 billion. To date, the state has lost more than $500 million on those bonds, according to state records.

“Governor Whitman came up with this outrageous gimmick in order to give people tax cuts,” says Kramer, chairman of the board that oversees New Jersey state pension funds.

<snip>

Pathetic.

[Critters2]

3. False dichotomy.

Go with headdesk and facepalm. And one of these: :wow:

[wellst0nev0ter]

9. Hell, I'll Just Settle For Torches And Pitchforks

And a map to either Wall Street or Capitol Hill :grr:

[UpInArms]

4. this is so much bullshit!

I should not have to pay for insurance on my property - car, real estate, etc and expect the insurance company that has repeatedly raised my rates without me ever claiming any damage to pay for any future claims.

Have I said how very much I have hated and despised these crapweasel republicans that have controlled Congress since 1994 through 2006?

[progressoid]

5. headdesk? Facepalm? I'm going with an extra gin and tonic tonight.

[wellst0nev0ter]

10. Hmm, I Got My Shitty Night-Shift Job To Think About

Eh, what the hell, pass it along here!

[Skink]

30. Drink up.

:toast:

[phantom power]

8. I guess paying premiums is for the Little People.

Like so many other things.

Wonder what AIG would have said if I'd told them I was not planning to pay them premiums on my policy back in 2005, since hey they were doing so well!

[earcandle]

11. Beliefs are unreliable. Better do some thinking and assurance in future.

"But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts."

[Seedersandleechers]

12. Unfucking believable.

What more fucked-up-ness is there to be revealed. What is to become of us?

[swag]

13. Which party controlled Congress during that period?

Oh yeah.

I remember.

[madrchsod]

14. tom hartman broke this story last friday

seems like a really sweetheart deal....maybe i will call my insurance company tomorrow and see if i can get this deal...

[TheEuclideanOne]

15. Wait just a minute.....

At what point did they know they were fucked and at what point did they raise the limit from 100K to 250K? Clearly they were aware of all of this at that time. Who made the call to say "We are broke, ah what the heck, let's raise our payout cap to $250K per account. It doesn't really matter, we don't have the money to pay it anyway." How does an insurance company that is effectively insolvent offer to more than double its coverage? How is it that nobody new about this until they made this emergency request? If they have been making requests of congress for years, obviously some people were well aware.

[hay rick]

29. Thank your elected representatives.

The cap was raised by the FDIC in October.
Article here: http://www.iht.com/articles/ap/2008/10/10/business/NA-US-FDIC-Insurance-Limits.php

excerpt:

The Associated Press
Published: October 10, 2008

WASHINGTON: The Federal Deposit Insurance Corp. on Friday formally approved the increased insurance limit of $250,000 per regular account that was part of the financial rescue legislation enacted last week.

<snip>

[TheEuclideanOne]

31. Not quite where I was going with this.

My grief is not so much that the limit was raised, everybody knows that it WAS raised, but that it was approved knowing full well that they did not have enough money to insure 100K, let alone 250K.

[hay rick]

34. FDIC- too big to fail.

This story is like everything else that is going on in the American financial sector now. FDIC collected all of $3 billion in fees from banks last year. Their reserves plummeted from $52 billion to $19 billion in the same period, so they want to raise the fees to $27 billion per year and the banks are howling (to their congress critters no doubt). The article states that the agency projects that it will need $65 billion to take over failed banks through 2013. Curiously, $65 billion divided by 5 years comes to $13 billion/year, so $27 billion should provide a 100% cushion. But just in case $65 billion doesn't get them through the next QUARTER, they're ready to put the arm on the treasury for a cool $500 billion...

Problem solved.

[kestrel91316]

16. Remind me again - WHICH party was completely in charge of Congress

during that time frame?

[valerief]

18. 96 to 06. Republican years. How will they blame Pelosi for this? I know!!!

The anticipation of the Democratic Congress! They KNEW Nancy would be in charge so they, er, um, now how can they spin this??? They'll just have to ignore it, I guess.

[99th_Monkey]

19. So banks pissed away FDIC premiums on worthless derivatives? So are Banks still insured?

If I don't pay my premium, I'm not insured ... i.e. in this case the Bank didn't pay premium, so now my deposits aren't insured.

or if they are supposedly "insured" it's all just smoke and mirrors.

[avaistheone1]

20. This is another reason to be sure to unseat every Republican in the next election

for Congress and the Senate. The Republicans have proven they can not be responsible and they can not govern.

[BumRushDaShow]

22. Why the hell isn't this all over the mainstream media?

:wtf:

Ah well... We all know that Rhianna and Chris are definitely more important! :sarcasm:

[Wizard777]

25. I'll bet all those premiums went to CEO bonuses and executive perks instead.

[nightrain]

28. so, under whose administrations did this happen?

oh, corporate-protectors Clinton and GW Bush. There's your answer!

[merwin]

36. And more importantly, under complete Republican control.

It is congress that can force collection, not the President.

[wellst0nev0ter]

39. kick

:kick:

[Justice]

40. Unbelievable. How much was paid to shareholders in dividends

instead of to the FDIC in premiums?