FDIC Is Running Out of Resources

The Federal Deposit Insurance Corp. is rapidly running out of money, and will soon have to tap into the $500 billion line of credit it has with the Treasury Department. But money is not the agency's only problem, as it also lacks the staff necessary to close banks when they become insolvent. With 92 failures so far this year—with more to likely to come later today—the FDIC is already stretched too thin. This can be seen from the way banks are being left open even after they admit in regulatory filings that they are insolvent.

FDIC Chairman Sheila Bair said yesterday at a conference at Georgetown University that the agency will seek public comment on ways to replenish its Deposit Insurance Fund, including charging fees to the banks it insures, issuing its own debt, or tapping the Treasury credit line. "We are currently considering all options, including borrowing from the Treasury," Bair said, according to Bloomberg.

As of June 30, 2009, the FDIC's Deposit Insurance Fund had $10 billion in funds to back $4.8 trillion in insured deposits—and that was 46 bank failures ago. The FDIC has also taken on $1 trillion in additional exposure by guaranteeing certain deposits that were not previously insured, and by guaranteed bonds issued by banks, as part of the bailout. These exposures, combined with the accelerating closures of smaller banks, mean that the FDIC is already in serious trouble. Were any of the "too big to fail" zombies to openly collapse, the FDIC would be instantly overwhelmed.