Lots of discussion in the US about whether FDIC – the Federal Deposit Insurance Corporation, which makes sure depositors get their cash back if banks go bust – can handle the banking bust that appears to be in the post. Nouriel Roubini points out that the collapse of IndyMac earlier this month used up fully 15 per cent of FDIC’s reserves.
As a result of that, FDIC will need to raise additional capital by hiking the premiums that banks have to pay, so financial services sector analysts are fretting about the additional costs this will imply for banks. What bothers me, though, is the fact that FDIC has five years in which to replenish its reserves. As an unnamed source put it to the FT:
The FDIC says it feels confident with $53bn … That’s incredible. The last crisis, in the ’90s, there were 550 institutions that failed. So far, there have been five. It can be a long season.
