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Originally Posted by CHAOS
well im sure no one here has that kind of money so we're fine.
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Taxpayers to the Rescue
Normally, when a bank fails there is adequate money to pay back depositors. But since the start of the year, nine banks have been closed by the government, the largest being IndyMac on July 11. These banks had a combined $25 billion in assets, although the federal government is not on the hook for all of that money.
For instance, of IndyMac's $19 billion in assets, about $1 billion in deposits were not insured, and the bank had enough other assets to pay back an additional $9.1 billion. The FDIC estimated today that it would have to pay out $8.9 billion in insurance, up from previous estimates of $4 billion to $8 billion.
The FDIC, created in 1933 during the Great Depression to help restore the public's confidence in the nation's banking system, receives no federal tax dollars and is funded through the institutions that it insures. Currently it has $50.2 billion set aside to cover bank failures, nearly 20 percent of which is likely to be depleted in the IndyMac insurance payback alone.
If a few more large banks -- or a lot of small banks -- fail, that fund could quickly become depleted.
Sean Egan, who heads the ratings desk of Egan Jones, sees more bank failures on the horizon but took a bit more conservative approach than Ryan.
"We wouldn't be surprised by another 15 banks," failing before the end of the year, Egan said. "But keep in mind, that many of them are smaller institutions."
He said another half dozen or so could also fail next year. Despite the lower estimate, Egan said that "absolutely" there is a chance that the FDIC could deplete its reserve fund.
"It would put a lot of pressure on the FDIC if another major bank were to fail," he said.