Banks Did Not Pay Their FDIC Insurance For 10 Years; Now Short On Funds.

Um, uh oh…

WASHINGTON – The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending.

Are you kidding me? This is outrageous, and I blame both the greedy bankers and every single member of Congress from both parties that let this nonsense go on for that long. Wow, just wow. They don’t pay their insurance premiums, things go belly-up, they take our tax dollars, complain about restrictions put on them by taking said funds, and then they don’t even like lending it back out to us. Not even sure what more to say, this gets worse almost every day with these people…

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Comments (16)

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  1. It is crazy. However, there is at least one member of Congress who has consistently stood against these bad practices. Congressman Ron Paul has been very unpopular in politics because he has stood for government reform.


  2. Miranda says:

    Amen! You said it all. Thank you for bringing this outrage to our attention.

  3. Green Panda says:

    I’m with you David. This is ridiculous!

    “But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.”

    So because they were having prosperous (aka more money) times, they didn’t want to store up some money for bad times?! *sighs* That is so stupid.

    Thanks for sharing this David.

  4. david says:

    Green Panda-sounds exactly like what Americans have been doing for years; not setting aside any money for savings!

  5. Ray M says:

    Crock! Ron Paul is not in favor of deposit insurance, nor is he in any way a believer in bank regulation.


  6. julia says:

    Where could I find a list of the banks that *did* pay their premiums? Suggestions? And thanks for including this. Totally irresponsible behavior on the part of so many….

  7. SJ says:

    That is so terrible. Wow.

    So basically if I understand it correctly, FDIC promises to insure the banks for the past few years w/o anything in return? That’s.. itneresting.

  8. david says:

    Julia – I wish I knew, I will see if I can find anything.

    SJ – Yes.

  9. I really don’t know what to say. I mean do you let the banks go insolvent and by default, let the depositors lose all their money?

    I swear, sometimes I think we just need to start over with everything. The banking industry, even WITH de-regulation, is still the most regulated industry around, but it does absolutely NO GOOD if no one enforces the regulations that are on the books.

    How can anyone seriously consider themselves a “public servant” when they didn’t demand the insurance premiums. Where are the checks and balances? Where’s the oversight? Is anyone in charge of anything these days?

    And people think the US “can’t” go under, that our bonds will always be good, that this whole mess can be easily solved. We need people with some integrity, but I fear there are too few left that would want their reputations sullied by working in the public sector.

  10. David says:

    10 years is a long time to let this go on, through 2 Presidencies. So scary that these people are acting on behalf of “us”.

  11. Mrs. Micah says:

    It’s things like this that make me just want to cry and shake people. Sometimes one despairs over the future of humanity because we always believe that THIS good period will be the end of all hardship, instead of a cycle like every other one has been.

  12. david says:

    You mean this won’t be the last recession/depression ever in history? 😉

  13. Tina says:

    Let me get this straight, if I don’t pay my house premimums or car premiums do I get to keep my policy active for 10 years???

    I don’t think sooooo

  14. SJ says:

    But the banks are in a no-lose situation…

    FDIC bails em out or lets the american peeps suffer…
    which will lead to bank run or what not =)

    What can the FDIC do? Or rather, how’s it hurt the bank if the FDIC doesn’t help em out? Sadnessss

  15. Luke says:

    Amazing. I did some research into the FDIC Insurance Fund for my blog and found that in actuality, the fund does not exist – it’s like the Social Security Trust Fund. The darn politicians couldn’t keep their hands off of the surplus.

    Here’s a link to the testimony that Bill Isaac had in 2000:


    Here’s the second question they asked him and his reply:

    Please discuss the adequacy of the statutory designated reserve ratio of 1.25%. Is it appropriate in light of subsequent legislative changes such as prompt corrective action, national depositor preference and Gramm-Leach-Bliley?

    It is important to understand that there is no deposit insurance “fund.” The FDIC collects premiums (taxes, to be more precise) from banks and thrifts and turns them over to the Treasury. If the FDIC collects more taxes than it spends, the surplus is counted toward a reduction of the federal deficit (or an increase in the surplus).

    The Treasury computer duly records the payments made by the FDIC. The money itself, being fungible, is spent on welfare, defense, education, and the like. Should the FDIC need money to handle a failure, the Treasury borrows the funds in the market.

    The outlay by the FDIC counts as an increase in the federal deficit. The object in collecting premiums from banks and thrifts is not to build a “fund,” but to ensure that over time the deposit insurance program pays for itself.

    The so-called “fund” is simply a running scorecard to determine whether banks and thrifts have paid in more than they have taken out.

  16. david says:

    Not surprised at all, and I cannot decide which could be worse – there actually is a fund or there isn’t!