The FDIC as Mafia Enforcer

You know how, like, the mob collects "premiums" from local business owners for "protection"? That's what we've got.

Undercapitalized? Fuck you, pay me.
Weighed down with writedowns and defaults? Fuck you, pay me.
Drowning in toxic assets? Fuck you, pay me.

I am not sure when our financial system became a gang war but it is fairly clear at this point that it has and JDA's professional suggestion is that you stay the hell out of the line of fire whenever possible.


The Federal Deposit Insurance Corp., seeking to replenish its fund as banks fail at the fastest pace in 17 years, today proposed that lenders prepay fees through 2012 and shelved any further special assessments.

Lenders would prepay their FDIC premiums for the fourth quarter and next three years on Dec. 30, generating about $45 billion, according to an outline of the staff’s recommendations. The agency raised its estimate for bank-failure costs to $100 billion through 2013, from $70 billion, according to the staff.

“Prepayment of assessments ensures that the deposit insurance system remains directly industry funded,” the FDIC said.

The board backed prepayments over alternatives such as borrowing taxpayer dollars from the Treasury Department, charging the banking industry a special fee in addition to levies they already pay and borrowing directly from the banks.

The fund, drained by 95 bank failures this year, had $10.4 billion as of June 30 and the staff estimated the fund will have a negative balance at the end of this quarter. The agency is required by law to rebuild the insurance fund when the reserve measured against insured deposits falls below a certain level.

Under the proposal, the FDIC wouldn’t impose another special assessment this year. The agency would raise assessments by 3 basis points in 2011.

The FDIC will seek public comment until Oct. 28.

The banking industry lobbied against a special fee that would be added to the regular annual premium paid by banks, telling the FDIC and Congress such a levy would hurt their ability to raise capital. Banks paid a special assessment in the second quarter that raised $5.6 billion. The agency also has authority to impose fees in the third and fourth quarters.

Banks backed prepayment because the premiums are classified as an asset when the payment is made, becoming an expense during the quarter in which the obligation is due.

OK, so they are classified as an asset (there goes that wonderful bank accounting magic again!) but the money is gone and the FDIC will have spent it long before the payment actually moves to the liability side of the balance sheet. If this makes sense to anyone, do let me know.

The irony of the FDIC picking 2012 is not lost on your girl Jr Deputy Accountant and I sincerely hope dear reader is in on the pure LOLZ of that too.

We're doomed!

Public comment, you say, eh FDIC? Oh you're asking for it. My letter-writing trigger finger is just itching to tell you what I really think, you sure you want that?

The worst part of all of this is that the FDIC already encourages moral hazard. But by hatching this crackpot scheme, it is doubly encouraging moral hazard - instead of addressing the Congressional rule that forced them to skip taking in premiums for 10 years, we are saying here that none of that matters, it's just about keeping up appearances. Moral hazard on moral hazard? Christ, what sort of Bizarro World reality warp have we stumbled into here?

Pull the plug already, the FDIC is a vegetable.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


OldSouth said...

Accounting tricks aside, the cash money is going to come from where by Dec. 30?

There are a lot of little, solvent banks out there who are now being held at gunpoint to prop up their competitors, the larger politically connected banks.

And, looking at the math you quoted, $45 billion is not going to be enough.

Oh boy, oh joy....