The Real Story With the FDIC
Executive Summary
- The FDIC is insurance for the banking system in the US.
- It is a massive subsidy to private banking interests and has since been expanded to investment banks.
Introduction
The FDIC is the Federal Depository Insurance Corporation and was brought into existence after the bank failures of The Great Depression and instituted as part of the 1933 Banking Act. There are concerns as to the FDIC’s resources given the increase in the riskiness of banking.
This is explained in the following quotation.
“In theory, deposits up to $250,000 are protected by FDIC insurance, but the FDIC fund had only 93 billion in it at the end of 2017. total US bank deposits are close to 17 trillion, of which about half are covered by the FDIC insurance in the 2013 article in USA Today titled can FDIC handle the failure of a mega bank? Financial Analyst Darrell Delamaide warned the biggest failure the FDIC has handled was Washington Mutual in 2008. And while that was plenty big with 307 billion in assets, it was a small fraction Heard with the 2.5 trillion trillion in assets today at JP Morgan Chase and 2.2 trillion at Bank of America or 1.9 trillion at Citicorp. There is there was no possibility that the FDIC could take on the rescue of a city group. Or Bank of America when the full fledged financial crisis broke in the fall that year, and threatened the solvency of even the biggest spikes. The FDIC has a credit line with the Treasury up to 500 billion but who would pay that massive loan back in theory it would be the member banks. But a major crisis could render the whole banking industry insolvent as effectively happened in 2008.” – Banking on the People
Source: Banking on the People
https://www.amazon.com/Banking-People-Democratizing-Money-Digital-ebook/dp/B07R3F6ZX7/
Is the FDIC Insurance?
The FDIC does not insure all banks equally but is in particular a giveaway program for the largest and most connected banks, as is explained in the following quotation.
It will be recalled from the previous chapter that the FDIC is not a true insurance program and, because it has been politicized, it embodies the principle of moral hazard and it actually increases the likelihood that bank failures will occur. The FDIC has three options when bailing out an insolvent bank. The first is called a payoff. It involves simply paying off the insured depositors and then letting the bank fall to the mercy of the liquidators. This is the option usually chosen for small banks with no political clout. The second possibility is called a sell off , and it involves making arrangements for a larger bank to assume all the real assets and liabilities of the failing bank. Banking services are uninterrupted and, aside from a change in name, most customers are unaware of the transaction. This option is generally selected for small and medium banks. In both a payoff and a sell off, the FDIC takes over the bad loans of the failed bank and supplies the money to pay back the insured depositors. The third option is called bailout, and this is the one which deserves our special attention. Irvine Sprague, a former director of the FDIC, explains: “In a bailout, the bank does not close, and everyone—insured or not—is fully protected…. Such privileged treatment is accorded by FDIC only rarely to an elect few.” 1 That’s right, he said everyone—insured or not—is fully protected. The banks which comprise the elect few generally are the Irvine H. Sprague, Bailout: An Insider’s Account of Bank Failures and Rescues (New York: Basic Books, 1986), p. 23.
Favoritism toward the large banks is obvious at many levels. One of them is the fact that, in a bailout, the FDIC covers all deposits, whether insured or not. That is significant, because the banks pay an assessment based only on their insured deposits. So, if uninsured deposits are covered also, that coverage is free—more precisely, paid by someone else. What deposits are uninsured? Those in excess of $100,000 and those held outside the United States. Which banks hold the vast majority of such deposits? The large ones, of course, particularly those with extensive overseas operations.2 The bottom line is that the large banks get a whopping free ride when they are bailed out. Their uninsured accounts are paid by FDIC, and the cost of that benefit is passed to the smaller banks and to the taxpayer. This is not an oversight. Part of the plan at Jekyll Island was to give a competitive edge to the large banks. UNITY BANK The first application of the FDIC essentiality rule was, in fact, an exception. In 1971, Unity Bank and Trust Company in the Roxbury section of Boston found itself hopelessly insolvent, and the federal agency moved in. This is what was found: Unity’s capital was depleted; most of its loans were bad; its loan collection practices were weak; and its personnel represented the worst of two worlds: overstaffing and inexperience. The examiners reported that there were two persons for every job, and neither one had been taught the job. With only $11.4 million on its books, the bank was small by current standards. Normally, the depositors would have been paid back, and the stockholders—like the owners of any other failed 1. Sprague, pp. 27-29. 2. The Bank of America is the exception. Despite its size, it has not acquired foreign deposits to the same degree as its competitors.
Source: Creature From Jekyll Island
https://www.scribd.com/doc/54912935/The-Creature-from-Jekyll-Island-G-Edward-Griffin