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Where does the money for FDIC come from?

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DireStrike Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-14-04 02:54 PM
Original message
Where does the money for FDIC come from?
If the economy goes into freefall and people start withdrawing their dollars, and banks are forced to close, the FDIC is supposed to insure those deposits(to a point.)

Knowing the creeps who run our country, I bet this money is probably walking around with its chest puffed out, propping up some failing business. Am I wrong? Does the FDIC have the ability to deliver what it's supposed to at this point?
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candy Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-14-04 02:56 PM
Response to Original message
1. They insure up to $100,000.00,I think. ----
I hope you get some answers because I'd like to know more about it too.
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Liberal Gramma Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-14-04 02:57 PM
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2. I think it is an insurance policy
The feds oversee and administer a bank in failure status, but I don't think the money to pay the depositers comes from the federal treasury
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mdhunter Donating Member (373 posts) Send PM | Profile | Ignore Sun Nov-14-04 03:00 PM
Response to Original message
3. I think, though I could be wrong, that banks are required to
keep a percentage of thier holdings aside, or in another federal holding instrument, to cover the costs. Wait, I may be thinking about something else....

Ok, I'll wait for the answer too :)
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MrUnderhill Donating Member (650 posts) Send PM | Profile | Ignore Mon Nov-15-04 10:24 AM
Response to Original message
4. The banks pay in to the FDIC fund
The FDIC actually insures against bank failure... not so much a "run on the bank" ala "It's a Wonderful Life". A run on the bank is more a liquidity problem than an FDIC problem.

The FDIC does NOT have enough money to handle massive bank failures (though it would have to be a truly catestrophic collapse before that become an issue - banks today are doing quite well), but it would be the Federal Reserve that would pump cash in to the system (buying back Treasury securities that the banks use as part of their asset mix) to cover any large-scale cash withdrawals.
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TO Kid Donating Member (565 posts) Send PM | Profile | Ignore Mon Nov-15-04 02:38 PM
Response to Original message
5. It's an insurance policy
All financial institutions pay into it based on the total of their deposit liability. The cost of a bank failure to an insurer is actually just a fraction of the total outstanding deposits, though, because if a bank goes under the FDIC takes control of all assets. Once those are liquidated (primarily by selling off the loans at a discount) the insurance fund takes care of any outstanding deposits in excess of the money collected.
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