Big Banks Strike Again: Didn't Pay Their FDIC Premiums For TEN YEARS

[FourScore]

Big Banks Strike Again: Didn't Pay Their FDIC Premiums For TEN YEARS
by dday
Wed Mar 11, 2009 at 02:43:09 PM PDT

Seriously, I am so done with these elites.

WASHINGTON - The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending.
http://www.boston.com/news/nation/washington/articles/2009/03/11/now_needy_fdic_collected_little_in_premiums/?page=full?ref=fp1

Imagine if you said to your health insurer, "I think I'm going to be pretty healthy for the next decade, and so is everyone else you cover, so, you know, you don't need my money for a while."

I mean, for ten YEARS, these banks didn't pay their insurance premiums, secure in the knowledge that they were the masters of the universe and nothing could ever hurt them. Keep in mind that the Asian financial crisis hit right in the middle of that time. But these banksters were invulnerable. But now the FDIC is eating banks left and right, and everybody expects the money just to magically appear in their account.

And I'm not leaving the policymakers off the hook, either. This was clearly a bipartisan swoon, a fealty to rich Wall Street greedheads that shouldn't be bothered with the imposition of insuring their customer's deposits. Congress agreed that there was enough reserves in the fund not to charge banks for ten years. That's a corporate welfare giveaway and nothing else. Sheila Bair was, if anything, a hero in this, pleading since before she took over the FDIC that the program needed more capital.

Bair said yesterday that the agency's failure to collect premiums from most banks "was surprising to me and of concern." As a Treasury Department official in 2001, she said, she testified on Capitol Hill about the need to impose the fees, but nothing happened. Congress did not grant the authority for the fees until 2006, just weeks before Bair took over the FDIC. She then used that authority to impose the fees over the objections of some within the banking industry.

"That is five years of very healthy good times in banking that could have been used to build up the reserve," Bair, a former professor at the University of Massachusetts at Amherst, said in an interview. "That is how we find ourselves where we are today. An important lesson going forward is we need to be building up these funds in good times so you can draw down upon them in bad times."

It is astonishing what is being revealed about how much banking interests ran the country for the last 15 years. Now, after taking hundreds of billions of dollars from taxpayers, they're whining about all the burdens the acceptance of public money is placing on them, like executive pay caps and selling corporate jets. Of course, they're not going to give back the money, just whine about it enough so that Congress loosens the reins. And even if they did return a portion of the TARP money they'd just make an end run to grab their corporate welfare through AIG. Because we wouldn't want a crisis on our hands by not paying them out.

So when times are booming, the banks want no regulation and won't even condescend to meet their own financial obligations with the government. When the casino closes up and they're tapped out, they come back for a handout. Which they get, at massive expense without taxpayers sharing in the upside. But don't you dare tell them how they can and can't spend the money. After all, they know best, right?

http://www.dailykos.com/story/2009/3/11/17402/8942/483/707343

[Traveling_Home]

1. Sounds like Congress did us in again

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts"

I expect Congress to work for us; I expect businesses to work for their shareholders.

Guess who failed in their job.

[flvegan]

2. Cool. I'm going to not pay my homeowners nor car insurance premium for the next 10 years.

They'll be just fine without my cash.

[jmm]

3. Can I try that with my taxes?

I'd need to add an extra zero to the end of my yearly income before I could get away with that.

[PJPhreak]

4. Hummm..

"The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis".

Really,From 1996 to 2006? Wasn't that when Newt and Crew had their "Contract on America"?

I Thought So.

So who's fault is this?

[catnhatnh]

5. I dont get this....I really don't...

were banks told "Oh really, don't bother" or did they stop paying and congress said "Oh really, don't bother them"??? I mean if you set up an "insurance agency" all you do is pay out losses and calculate and collect fees...I just totally do not understand the breakdown here. Was legislation passed to waive payments? If so by whom was it introduced and when was it passed?

Edited to add:Never mind I read the article...the banks lobbied (read:bribed) congress and in 1996 fees were waived, probably quietly in the middle of some omnibus bill. I wonder what new screwings we took today???

[exboyfil]

6. The issue that has to be considered is what would the FDIC

do with excess funds collected during the good times. Buy Treasuries and create a trust fund like Social Security to handle the lean times? That approach has the same problem as the Social Security Trust Fund. A Trust Fund holding Treasury obligations is meaningless if there is no fiscal restraint in the underlying institution (ie have it stop borrowing and retire all non-Trust fund debt for a start). Of course the advantage of having all the banks paying into the insurance fund is that they are stepping up to the plate and recognizing their true cost of doing business (the FDIC guarantee should mean something in both directions). FDIC insurance by its nature creates a huge moral hazard that can only be corrected by strict regulation. I don't know how the FDIC is structured, but ideally the insurance should be based on the actual risk being taken by the various institutions (debt to equity, type and quality of debt etc). Really hard to measure even without financial instruments of mass destruction.