Well, then:
The FDIC didn’t take insurance premiums from banks from 1996 to 2006 – because, well, everything was doing so well, and Congress didn’t want them to bother the banks.
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.
To possibly reduce the fee increase, the FDIC has asked Congress for the temporary authority to borrow as much as $500 billion from the US Treasury – up from the current $30 billion limit - in case the number of bank failures increases even more dramatically.
No kidding! Well, there’s more to it than just THIS idiocy…it’s also a large bank versus small bank divide.
Right or wrong, he says, people believe that their nest eggs may be safer at mega-banks such as Bank of America or Wells Fargo, “because the perception is that the [federal] government would never allow such a large institution to fail.”
The result, according to Craig Hudson, executive director of the California Independent Bankers Association, is that a would-be depositor with, say, $500,000 in proceeds from a home sale would not even consider putting it in a community bank. “They would go straight to a large bank or, even more likely, a brokerage. And that brokerage might be located right in the bank lobby itself.”
Of course, the people who were against the reforms of the FDIC limits mentioned in the article are Phil Gramm, Larry Summers and Alan Greenspan. Turkeys all, and yes, I know what Larry Summers is doing these days, and I’m not happy with either him or Geithner.
The premiums were reduced in 1996 because the fund had reached its statutory reserve level. That wasn’t so much the problem. Everybody was happy. (Except the thrifts, which had by no means reached theirs—but that’s another story). The problem really came about five years later (2000/2001) when the FDIC realized that many changes in banking (such as increading levels of consolidation), plus inflation, had made that reserve level too low, and there was no way for them to change it. Also, newer banks, which themselves had never paid any premiums, were unfairly coasting on the previous premiums made by older banks. And many other complications with the system.
That’s why in 2001 they lobbied congress for statutory authority to have flexible control over the reserve levels, to match the actual state of the banks. Congress did not make banks start paying premiums again until 2006. So, as Bair, puts it, “five years were wasted.”
You can have all the regulation on paper in the universe, too, but if the people in political power decide to tell the FDIC and the SEC and whoever else that You Don’t Bother Palsy, Understand? – well, then Palsy doesn’t get in trouble. Palsy sets up Ponzi schemes, and the SEC doesn’t go after him. Palsy sets up all sorts of semi-legal scams, and Palsy never has any problems. Palsy gets into trouble later, and Palsy starts screaming that the Little People are Vile Vermin, and should Leave Him Alone To Be Capitalistically Productive of He’ll Take His Genius Elsewhere That Appreciates Him.
Bub. See that picture of my wife? She’ll step out, you step in and we’ll appreciate the heck out of you for 15 years, OK?
