FDIC Prepay-Premiums Won’t Work

The FDIC ordered banks to prepay three years worth of premiums in order to replenish a weakened FDIC fund, which resulted from the massive bank failures that occurred this year stemming from the recession. The idea was to have these premiums, which amounted to three years worth of payments, on hand so that it could still insure deposits if, or as some predict when, more banks fail.Still, others feel this plan is going to do nothing to solve the true problems in the FDIC or banking industry because many analysts feel that the FDIC is borrowing money from a banking industry, which simply can’t afford to prepay such an amount at this time. Banks losing this amount of capital are losing a safety cushion in terms of defaulted loans. If a bank grants a loan and that loan is later defaulted the bank still has money on hand to operate. If they are giving the FDIC a large amount of their assets it restricts lending and puts an injured industry, or more specifically a recovering bank, in line for failure.

Also, the feeling that this early collection of FDIC premiums will not sufficiently replenish the FDIC fund and in the years to come banks, mainly healthy banks, will be charged more fees to make up for the FDIC’s continued support of banks that are predicted to fail.

Obviously, FDIC officials feel the early payment of premiums is the best way to go and that it will actually keep the FDIC from having to levy fines and fees on banks and it will in no way hinder banks from lending. Many are now putting less faith in the stock market or other investment ventures and depositing their money in the banks so the FDIC feels this coupled with the fact the economy is on the mend is the best course of action in the face of more bank failures on the horizon.

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