This should be scaring the hell out of the stock market in general and financials in particular.
FDIC is bankrupt. They chewed through $40 billion in reserves in only 12 months.
If they do not access the line of credit from Treasury they will not be able to cover insured deposits from failed banks.
Potential for bank runs and bank holidays has jumped tremendously.
The timeline for bank runs and holidays is probably now months away rather than years.
This partial article is from Bloomberg:
Sept. 29 (Bloomberg) -- The Federal Deposit Insurance Corp. proposed asking banks to prepay three years of premiums to replenish reserves dented by a rash of bank failures that the agency said will cost $100 billion through 2013.
The insurance fund will run a deficit as of tomorrow after 120 banks failed in the past two years, the agency said today. Half the costs from seized banks have been incurred already and prepaying the fees will raise $45 billion, the FDIC said. The agency rejected options for a second special fee or borrowing from the Treasury Department.
“What we are proposing to do is to tap the ample liquidity of the banking industry to improve our own liquidity position without borrowing from the Treasury,” FDIC Chairman Sheila Bair said at a Washington board meeting. The agency raised its five- year loss estimate by 43 percent.
The agency is required by law to rebuild the fund when the reserve ratio, or the balance divided by insured deposits, falls below 1.15 percent. It was 0.22 percent on June 30. The fund, drained by 95 bank failures this year, had $10.4 billion at the end of the second quarter. The fund will erase its deficit by 2012, the staff said.
The proposal approved by the board requires banks to pay premiums for the fourth quarter and next three years on Dec. 30.