As more small banks fail, the FDIC is hurting

October 12, 2009 – 2:36 pm – No Comment

FDIC house

The Federal Deposit Insurance Corporation, or the FDIC, has been scooping up failing banks and doing exactly what it was designed to do, protect consumers who have put money in the bank from losing it all when a bank goes out of business.

However, there is a definite problem when several banks fail and the FDIC has to continually rescue them. That’s what’s been going on for the past year. Now, we’re up to the 100th bank closure in the United States since the beginning of the bank crisis a year ago.

What’s worse is that even though a hundred banks have already failed, it is anticipated that many more will fail as loans to small businesses go bad over the next few years. This will put more banks out of business at an increasing rate.

Bank failures have already put a serious strain on the FDIC. Just two years ago, it had $50 billion in its fund, and now it is in the red.

“In the near term, bank failures can be painful,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation. But a bank that is teetering on collapse is not going to lend, she said, and “that’s not good for the economy.”

What happens to the FDIC when all the money runs out? It has to get its money from somewhere else. The FDIC is hurting right now and the more banks that fail it becomes more and more apparent. I just hope that it doesn’t come to a point where people who have their money in the banks aren’t able to get their money out because their bank has failed and the FDIC is completely out of money and unable to get any more.

The FDIC was created in a recession to ease fears, now it seems like with the failure of so many banks, all those fears are coming back with or without reason.