Indymac Bank made the biggest headlines recently, but so far in 2008, seven banks have failed and have been taken over by the FDIC. When this happens, the FDIC will guarantee $100,000 per account. But what if they run out of money? They insure $4.4 trillion in deposits and currently hold about $44 billion in their Deposit Insurance Fund. This 1% fund is below the target fund amount of 1.15% o 1.5% of deposits. According to a Goldman Sachs FDIC report published this week, the way to replenish the fund is to increase assessments from banks and/or transfer money from the Treasury Department.
Here’s an excerpt summarizing FDIC and Fannie/Freddie aid costs:
As noted above, the OMB has estimated that the insurance fund could face $17 billion in additional losses over the next two years, in addition to at least $4 billion estimated for 2008. The Congressional Budget Office (CBO), which will revise its budget projections in August, is likely to increase its estimate as well. While the OMB does not assume any cost from the recently passed legislation providing the Treasury with authority to assist Fannie Mae and Freddie Mac, the CBO estimates it will cost the federal government $25 billion, with $20 billion of this cost coming in 2009. Given that the estimate assumes a greater than 50% chance that the authority is never used, this implies that if the Treasury does indeed provide assistance to the GSEs, the cost will be $50 billion or more. Thus, the combination of GSE and FDIC related losses could lead to a hit to the budget of $71
billion, most of which could come in fiscal 2009.