Our lawmakers want to increase the FDIC deposit-insurance levels from $100,000 to $250,000. The rational is that the level has not been increased in over twenty years and will restore confidence in the banking system by comforting depositors who might otherwise take their money out.
On the surface this increase in deposit-insurance levels seems innocuous enough. However, when one looks at the balance sheet, it may not be so innocuous. The FDIC's deposit-insurance fund is already at a historically low level, with roughly $1 backing every $100 of insured deposits. The FDIC insured roughly $4.5 trillion in deposits as of the second quarter, and had $45 billion in the actual fund. Given the current capital ratio of 1%, or a financial leverage factor of 100:1, our lawmakers want to increase the size from $4.5 trillion to $11.25 trillion. Wow! Therefore, its capital ratio becomes .4%, or a financial leverage factor of 250:1.
Of course, the FDIC could levy higher fees to fund the increase levels, which would keep the capital ratio what it is currently. However, given the financial plight of the current banking industry, that might be hard for banks to do. I guess an alternative would be to temporarily waive the premiums that banks pay to the FDIC and have the Treasury be liable for covering losses. Why not? What is a trillion or two to the Treasury, it's only tax payers money. And, of course, the FDIC is backed by the "full faith and credit" of the U.S. Government. Need I say more? Only to ask the question, what will happen to the value of the dollar and our global economic leadership position if we continue to bail out entities and entities through monetizing our currency?
No comments:
Post a Comment