FDIC’s Burden Growing

FDIC’s Burden Growing
February 26, 2009

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

David Carpenter’s comment on the security of FDIC-insured online banks places a great deal of faith in an institution that is under a great deal of strain (Telegram & Gazette, Feb. 17). That faith may be undeserved. With banks melting down and portions of the financial sector reaching full-blown panic mode, there’s plenty to be worried about.

Last year, the FDIC seized 25 banks, the most since 1993, at a cost of around $7 billion from its Deposit Insurance Fund, which now holds around $36.4 billion in reserve. That represents a reserve ratio of roughly 1 percent, clearly not enough to cover a large-scale failure. The FDIC should be raising the rates it charges to the banks whose deposits it insures. Doing so would allow the FDIC to more adequately address the risk they cover and rebuild dwindling DIF reserves.

The questionable capacity of the FDIC to support an influx of new online banks should weigh heavily on consumers’ minds. Consumers should seek banks that are well-capitalized and not overburdened by debt; online banks may not have the same security and stability as bricks-and-mortar banks

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)