FDIC


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The FDIC gets the funds from the treasury as needed and then tries to tax the banks to pay it back.

All that does is raise the marginal cost of credit via a transfer to the govt.

Which reduces aggregate demand. Just one more example of a confused govt policy.

FDIC’s Coffers Are Depleted, It May Need Help

August 27 (AP) — The coffers of the Federal Deposit Insurance Corp. have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.

That has happened only once before — during the savings-and-loan crisis of the early 1990s, when the FDIC was forced to borrow $15 billion from the Treasury and repay it later with interest.

Small and midsize banks across the country have been hurt by rising loan defaults in the recession. When they fail, the FDIC is responsible for making sure depositors don’t lose a cent. It has two options to replenish its insurance fund in the short run: It can charge banks higher fees or it can take the more radical step of borrowing from the U.S. Treasury.

None of this means bank customers have anything to worry about.

The FDIC is fully backed by the government, which means depositors’ accounts are guaranteed up to $250,000 per account.
And it still has billions in loss reserves apart from the insurance fund.


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