Last week, the FDIC went out of its way to clarify its accounting policies, to show that the draw down of its deposit insurance fund was not as severe as it seems. This week, they are rather publicly weighing options for giving that fund an emergency shot in the arm.
So which is it — is the fund healthy or not?
The answer to that question will help determine whether depositors finally get a break, in the form of higher savings account interest rates, CD rates, etc.
One option for replenishing the FDIC insurance fund is another special levy on banks. This is a cost that many banks will have to pass along to their depositors, which will put more downward pressure on bank rates. This doesn’t see fair, when the root of the banking problem is borrowers not depositors. Moreover, it could be burdensome to banks which are on the border of shaky health, which would be counter-productive.
Supposedly, the option of the FDIC getting more funding directly from the government is politically unpalatable, because it would represent a bailout that would put yet another burden on taxpayers. Taxpayer frustration is understandable, but having the burden fall instead more narrowly on the backs of depositors is even less equitable.
Bank deposit customers should consider making their opinions on this known to their elected representatives. If a taxpayer bailout is politically unpalatable, it should be made clear that having depositors continue to bail out bad lenders and borrowers is also unacceptable.
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