A Bloomberg News item suggesting that the Federal Deposit Insurance Corporation (FDIC) might need up to $150 billion to save the economy from a bank failure tsunami is flat wrong, says the FDIC.
In a letter sent to various media outlets, FDIC public affairs head Andrew Gray makes the case that the FDIC is ready and able to withstand "significant upsurge in bank failures."
Nor is it a given, as Evans suggests, that taxpayers will have to put money into the bank-insurance fund, Gray writes.
"The fund's current balance is $45 billion ? but that figure is not static," Gray writes.
"The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income," he writes.
Gray said the fund will be proposing soon to raise those premiums to insure that the fund is strong, and it will also propose higher premiums on "higher risk" activity.
"The fund is 100 percent industry-backed," Gray notes.
Because the fund is run by the industry, it can access up to $1.3 trillion if necessary. The FDIC also has "longstanding" line of credit with the Treasury, money it uses for bridge loans when a bank fails.
"If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks," Gray writes.
The fund has borrowed from the Treasury, once, in the early 1990s, and it paid back the money within two years by assessing the member banks.
"No depositor has ever lost a penny of insured deposits, and never will," Gray writes.
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