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FDIC Deposit Insurance Fund Shrinks


From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.


And I'm Melissa Block.

The government fund that protects most bank deposits is running low on cash. The Federal Deposit Insurance Corporation announced today that its funds have dwindled to just $10.4 billion. They haven't been that low in more than 15 years. The trouble is the economy may be looking up but many banks are still struggling. And the FDIC's list of problem banks has grown to more than 400 since spring.

NPR's Frank Langfitt reports.

FRANK LANGFITT: Eighty-one banks have failed so far this year. At a news conference, FDIC Chair Sheila Bair said those failures are sapping its insurance fund. The fund is now at its lowest level since 1993. And Bair said more bank failures are coming.

Ms. SHEILA BAIR (FDIC Chair): We expect the numbers of problem banks and failures will remain elevated, even as the economy begins to recover.

LANGFITT: The fund insures deposits of up to $250,000. Bair emphasized that depositors aren't at risk.

Ms. BAIR: No insured depositor has ever lost a penny of insured deposits and no one ever will.

LANGFITT: But Bair said the fund definitely needs more money. She said she has no plans to borrow from the Treasury. Instead she expects the FDIC to levy a special assessment on banks to raise the money later this year. Why are so many banks in trouble at a time when the economy may be bottoming out? Analysts say it's delayed impact from the recession.

Mr. GUY CECALA (Publisher, Inside Mortgage Finance): Banks are just, you know, a mere reflection of the economy overall.

LANGFITT: That's Guy Cecala. He publishes Inside Mortgage Finance. The financial crisis began with the collapse of the housing market. Now, Cecala says the problems affecting banks are broader and more rooted in the real economy. Securities on commercial mortgages are souring and Cecala says mounting job losses and business bankruptcies are causing more people to default on loans.

Mr. CECALA: You tend to see the direct impact of the unemployment on consumer loans, you know, credit cards, auto loans that type of thing. The companies that are laying off people often have losses themselves and they are defaulting on loans. And, you know, again it has a domino effect.

LANGFITT: And continues to batter bank balance sheets. The FDIC added more than a hundred banks to its problem list between April and June. Cecala says the insurance fund clearly needs to be replenished.

Mr. CECALA: $10.4 billion is not a big number, you know, basically a fairly mid-size bank could wipe that out very soon.

LANGFITT: But bankers say hitting them up for more money in this economy has consequences. Michael Menzies runs Easton Bank and Trust on Maryland's eastern shore. He also chairs the Independent Community Bankers of America.

Mr. MICHAEL MENZIES (President, CEO, Eastern Bank and Trust; Chairman, Independent Community Bankers of America): Depends on the dollar run obviously and whatever that dollar amount is, it will reduce our earnings. And it will -whenever you reduce the earnings of the bank and you reduce the capital of the bank, you reduce its ability to lend into the economy.

LANGFITT: Menzies says banks are stronger today compared to past crises.

Mr. MENZIES: In perspective to the years when we had 500 banks or 1,000 banks fail back in the '80s or the early '90s, the number of bank failures today is certainly nowhere near what occurred way back then.

LANGFITT: All told, the nation's banks lost more than $3 billion between April and June. But Menzies says most of the country's 8,100 banks are still doing okay.

Frank Langfitt, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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Frank Langfitt is NPR's London correspondent. He covers the UK and Ireland, as well as stories elsewhere in Europe.