Banks Didn't Pay Into FDIC Coffers From 1996 To 2006
For 10 years—including the boom times banks enjoyed in the first half of this decade—the FDIC was prevented from collecting fees from 95% of financial institutions, which it would have used to further build up its safety net in the event it would someday have to bail out a bunch of stupid losers who confused banking with alchemy.
Cornelius Hurley, director of the Boston University law school's Morin Center for Banking and Financial Law, told the Boston Globe that if the FDIC has to take over a large bank—say, Citibank—the funds that remain would be drained "in a flash."
"Typically you would build up a reserve during the halcyon days to protect yourselves during a recession," he said, calling the decision to stop collecting most premiums "a political one" that was pushed by banks and not based on strict accounting principles.
Of course the American Banking Association says it made no sense to pay into the FDIC during those 10 years because they had more than enough money. Congress, not surprisingly, agreed with them.
But James Chessen, chief economist of the American Bankers Association, said that it made sense at the time to stop collecting most premiums because "the fund became so large that interest income on the fund was covering the premiums for almost a decade." There were relatively few bank failures and no projection of the current economic collapse, he said.
"Obviously hindsight is 20-20," Chessen said.
House Financial Services Committee chairman Barney Frank agreed that officials believed at the time that the good times would last and that bank failures would not be a problem.
"We had this period where we had no failures," the Massachusetts Democrat said in an interview yesterday. "The banks were saying, 'Don't charge us anything.'"
At the end of 2008, the FDIC's insurance fund ratio was 0.40% of all insured deposits, far below the minimum 1.15% mandated by Congress.
"Now-needy FDIC collected little in premiums" [Boston Globe] (Thanks to Karl!)
(Photo: gruntzooki)
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That's it. I'm moving to my own island nation called Pecania, and I'm open to applications if anyone wants to come too. We'll all have to work for our money but if I decide the currency is pie, it'll at least be a yummy workplace across the island. Who's with me?
@ pecan 3.14159265
Since my intended and I are to be wed on Pi day can we come? Sounds like a lovely place!
I can remember a time when I had a savings account of 6% return. *sigh*
I kind of like this logic. I mean, I've paid homeowners insurance for a good long time and it hasn't caught on fire so far--so they should just be content with the money they have collected and continue to cover my risk free of charge.
Amazing... thats exactly what they thought in the 20s... that 'prosperity' would never end.
Even more amazing is if we just had not broken all of FDR's 'Regulation' we wouldn't be in this mess. But ya, your right, FDR was just a horrible socialist that prolonged the depression. Oh, and the Holocaust didn't happen.
OK, I'm now all for raising the premiums as discussed earlier. Can we collect them this time?
No one in their right mind would think that this is a good idea. Everything is fine so no need to prepare for the worst. dumb, just dumb.
@rainbowsandkittens: Hey yeah, i have paid into health care and haven't died yet, so i should be covered forever at this point, right?
Stupid English Major question: if "interest income on the fund was covering the premiums," then how is the fund coming up short?
Also, what happened to the "preview comment" button?
This sounds similar to those who want the gov't to release oil from our strategic reserves when the price of gas shot up. I think with FDIC fee's and adding oil to the SPR we should stay consistent, payting/adding during the good times and the bad
Mind boggling. Absolutely mind boggling. Even in light of all of the bizarre and greedy things that have been exposed lately this one takes the cake.
@pecan 3.14159265: Applia will not stand for your obvious ploy to bulk your numbers and institute a draft. We are voting on whether or not a preemptive strike is necessary.
Ah, yet another "Miracle of the Marketplace" idea proves its worth. I guess the Savings and Loan larceny was just a blip (that we are STILL paying off)?
Tell me again why it was a good idea to pay off their gambling debts in addition to the depositor money they were also allowed to gamble with?
Our kids have to go hungry and without healthcare because these assholes colluded to raid the treasury? Something stinks here.
Idiocracy is a documentary.
Figures. Barney Frank. He doesn't understand the difference between common and preferred stock in the BofA compensation issue, but he does know that we shouldn't have saved up for a rainy day. Can this guy lose any more credibility?
Do they not know about saving for a rainy day. I mean there was article about this just today.
List of chores for tomorrow:
1. Go to Sleepy's and buy a bigger mattress.
2. Go to bank (online and brick & mortar) and withdraw money.
3. Cut open mattress.
4. Place all money into mattress.
5. Pray and cry.
No problem.
Barney Frank can cover the unpaid fees with money from UBS - Swiss account settlements.
I feel like the banks had this sort of business model:
1. Get money
2. Hoarde money
3. Weasel government into not paying money
4. ????
5. Profit!
"Obviously hindsight is 20-20," Chessen said.
No shit, Sherlock...
@pecan 3.14159265: I'm suprised no one has called you out for starting up a communist (socialist OMG!) society! Heaven forbid something that *works* be implemented for once.
So where can we find the campaign contribution list of the American Bankers Association and its members? It should probably make some interesting reading just like the list of Freddie and Fannie contributions.
Teflon Barney Frank dodges another bullet. That guy's fingerprints are all over the bloody knife that killed our economy.
When will the voters wake up and get rid of that loser?
From the article: "The FDIC has never failed to make good on its promise to pay for the insured deposits when a bank fails, and officials said that will not change."
They kind of BURIED THAT IN THE END THERE. So, do we trust this? All I have is my savings, do I need to invest in the mattress bank?
Man, I am so naive, I really honestly believed that when my banked claimed to be FDIC insured, that meant they were paying a premium for that insurance. Sort of like how I pay premium for all my insurance policies. I really cannot believe how ignorant I was. How could I have been so mistaken?
1996-2006, huh? There was the Asian banking crisis and then we bailed out the entire country of Mexico. And wasn't this just ten years after the $300B S&L scandal?
I'd love to say, "I haven't gotten into a car accident in the last ten years, so I'm a safe driver therefore I don't have to pay my car insurance premiums."
Can you imagine that despite not having paid your car insurance bill for two years, you total your car and they still cover you?!
Must be nice to be a 'corporate citizen.'
and just who was in charge that decade? and what party dominated congress?
oh yes. . . . .
Well for one thing, the money is not growing and it needs to grow simply to keep up with inflation.
@LJKelley: The problem wasn't so much the deregulation, it was the massive governmental pressure to give out mortgages.
Ever since the 60s the US government has been actively seeking to expand the number of people owning a home, which means expanding the number who take mortgages.
The biggest things to do this have been Fannie and Freddie, and the mortgage tax deduction.
The problem is that while you get some short term gains when you implement the programs, in the long run they drive up housing prices by the exact amount they're subsidizing them for. Eventually, that blows up, like it just did.
@magic8ball: The fund was required to have 1.15% of deposits. Because deposits weren't growing (we weren't saving anything), it didn't take very much money coming in to keep it at 1.15%, and since banks weren't failing, money wasn't leaving. So the banks didn't have to pay in to keep the fund at where it was supposed to be.
The problem is that there are about 6-7 banks which have the vast majority of deposits. 1.15% of nationwide deposits is not nearly enough to cover one of them going down. That's part of why they're "too big to fail."
Put money away during calm days so you're safe on a rainy day?
Why didn't consumers do this?
It seems people followed the government - not saving any money, spending recklessly.
Practical question:
How hard would it be to open an account at a Canadian bank for an American. I know they even have US dollar accounts.
@rainbowsandkittens: I subscribe to Chris Rock's idea of insurance:
(paraphrased)
"If I give you $100 'in case' some shit happens, and that shit doesn't happen... shouldn't I get my $100 back?"
@huadpe: Everyone knows the people in charge are like Kelly Bundy. When they learn something new, they forget something they already knew. This means that when the people running the banks learned how to exploit the subprime market they forgot about the market crash of 1929.
Then, when they learned about the subprime market crash they forgot about FDR's New Deal. Its all very simple and easy to understand, guys.
"We had this period where we had no failures," the Massachusetts Democrat said in an interview yesterday. "The banks were saying, 'Don't charge us anything.'"
"...and I, being the good politician I am, accepted their lobbying money and other political contributions and decided they must be right!"
So, there's a government mandated payment to the FDIC and everyone just decided nah tell you what, let's not pay that.
Might have misunderstood the word 'mandated' there but... No, no I didn't, just seems they did.
I like that idea for my own insurance needs--auto liability, health. Been driving 30+ years with no accidents, currently healthy. How about I don't pay premiums since my future looks so rosy based on my past? Hmmph. They didn't even look at their past to before passing on premiums. Hey, no premiums to pay? More money to funnel into CDOs, executive bonuses, buying up questionable assets [Countrywide, Merrill Lynch--I'm look at you BofA!]
It's a new paradigm! The good times will never end! Stocks will go up forever! There is no longer a downside!
Famous last words.
@rainbowsandkittens
Whole life insurance works like this. They invest your premiums, and, eventually, if the investments work well, the interest on those invested premiums is enough to cover the annual cost of the insurance to you, so you don't have to invest premiums any more.
Will you accept citizens of all confectionary preferences?
I love pie, but my boyfriend prefers Red Velvet cake. I'd hate to have to leave him behind.
There were relatively few bank failures and no projection of the current economic collapse, he said.
THAT'S THE F---ING POINT!
You plan for the bad stuff you see coming. Insurance is for the stuff you don't see coming. That's why it's insurance!
So I guess I really don't need flood, fire, liability, or theft insurance on my personal stuff. After all, who would have EVER thought...
Well, where else would banks get the money to get insane profits? By not paying the Government and not paying back their debts.
But James Chessen, chief economist of the American Bankers Association, said that it made sense at the time to stop collecting most premiums because "the fund became so large that interest income on the fund was covering the premiums for almost a decade."
I wonder why insurance companies continue to collect premiums on their policies. The above quote has to be the single most ignorant statement about insurance that I have ever read. We need to revive tar and feathering.
Wow, it's amzing how soon people get complacent and forget the past.
"House Financial Services Committee chairman Barney Frank agreed that officials believed at the time that the good times would last and that bank failures would not be a problem."
Because good times never EVER come to and end, do they? I think if the banks collapse now, they should pay the insurance directly out of the pockets of the idiots who thought this was a good idea and followed through.