THE PLANK MARCH 6, 2009
Sen. Chris Dodd has proposed a bill to lend the Federal Deposit Insurance Corp. some $500 billion to fill the bank insurer's emptying coffers. There have been 16 bank failures already this year, on top of 25 last year, and the fund started out 2009 with a mere $19 billion (along with a $30 billion credit line from the Treasury). Of course, the FDIC can just raise the fees--aka premiums--that banks pay for coverage. But that's tricky these days: When FDIC Chair Sheila Bair proposed to do just that last week, the banking sector howled. (I know, they howl all the time--but it's a good bet the sector doesn't have $500 billion to spare. Or $50 billion.)
This isn't a new problem; Bair has been struggling to make ends meet since the banking crisis picked up speed last fall. And Dodd's plan would surely help. But still ... it's also yet another indication that we truly are staring into the abyss. If the perception spreads that the FDIC can't cover bank deposits, we'll see the sort of Depression-era bank runs the FDIC was designed to prevent. And with only $49 billion in place absent Dodd's proposal, that could come awfully soon.