If Enough Banks Fail, The FDIC Could Run Out Of Money

Everyone knows that your money is safe in an FDIC insured bank because if the bank fails (Hello, IndyMac!) the FDIC will step in and repay your money (generally, up to $100,000.) But what if the FDIC runs out of money? It doesn’t have an unlimited supply and enough bank failures could completely drain its fund, says ABCNews:

Thanks to a collapsing housing market and a weak economy, a growing number of banks are struggling to stay afloat, with not enough cash on hand to cover losses from bad loans.

At the beginning of the year, 90 banks were on the FDIC watch list. There are now 117, FDIC chairwoman Sheila C. Bair announced at a news conference this afternoon. That is the highest number in five years, but some analysts expect the list to grow even more in coming months.

“I think there’s going to be a steady drip, drip, drip of bad news,” said Sean Ryan, a banking analyst with Sterne Agee. “We’ve only seen the very tip of the iceberg in terms of bank failures.”

“I fully expect the FDIC insurance fund to be depleted,” Ryan added. “The FDIC is going to be one of what is going to be an increasing string of government bailouts.”

So should you worry?

Nah, says one expert:

Ultimately though, Ryan said depositors with less than $100,000 in the bank have nothing to worry about.

“The reality is anybody who is within that threshold shouldn’t lose any sleep at night,” he said. “For all the kind of unjustifiable bailouts being done on Wall Street there’s no chance that the government is going to let John Q. Public’s money disappear.”

Still, the numbers are sobering. The FDIC currently has about $50.2 billion in its fund — 20% of which will be depleted by the recent IndyMac failure. How many more IndyMacs do we have to look forward too? Who knows.

FDIC Warns of More Bank Troubles [ABCNews]

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