More Evidence That the FDIC is Almost Broke? (Needs Private Equity to Buy Failing Banks)

I have gone over all the financial signs that I feel point to a potential bank holiday either next week on August 26 or sometime in the near future. The FDIC insurance fund balance has dropped by $40 billion since last year from $52.8 billion down to $13 billion as of March 31, 2009. With the number of banks that have failed (77 to date) and with as many as five hundred (500) banks expected to fail this year, the FDIC is taking extraordinary steps to attract private equity investors to purchase failing banks.

Basically, the FDIC is saying that it is out of money!

This should not be a surprise, because Shelia Bair said back in March that the FDIC would be out of money before the end of the year. If the FDIC runs out of money, you will likely see a HUGE run on the banks which would necessitate a bank holiday, because the banks would not have enough cash on hand to cover its customers' deposits.

Federal regulators are planning next week to make it easier for private equity firms to buy insolvent lenders, according to people briefed on the situation, a move that would reduce the number of failed banks that the fund would have to support...

For the F.D.I.C., led by Sheila C. Bair, it is critically important to keep the insurance fund full because confidence in the banking system depends in part on depositors knowing they will get their money back...

Analysts are increasingly concerned the fund could be wiped out if more bank failures drained the money the agency has set aside to cover them. That could require the F.D.I.C. to tap a multibillion-dollar lifeline from taxpayers, through an emergency borrowing program run by the Treasury Department, to finance loan sales and other short-term obligations.

Source: New York Times