Mortgage Rate News

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Recently, the news has got out that the FDIC’s bank fund is in the process of being depleted. As a result, the FDIC is meeting today to try and hash out issues related to replenishing its fund. Here is what MarketWatch reports about the situation:

The FDIC meets Tuesday to tackle the thorny issue of how to fund the coverage of insured depositors. Ninety-five banks have failed to date in 2009, up from 25 during 2008 and only three in 2007.

The FDIC will also reportedly consider other options to figure out how to raise enough money to keep depositors to failed institutions whole.

Complicating the situation, 50 institutions were closed in the third quarter for a total estimated cost to the FDIC of $14.9 billion, according to researchers at Keefe Bruyette & Woods.

One of the problems that the FDIC has with cash flow is the fact that between 1996 and 2006, many banks stopped paying their FDIC insurance premiums. So when the crisis hit, the FDIC’s bank fund wasn’t nearly as big as it could have been.

Prepayment from banks?

Considering this history, it is no surprise that the FDIC is mulling over the idea of prepayment from banks. The FDIC might ask banks to prepay three years’ worth of fees in order to help replenish the bank fund. Personally, I think the FDIC would be in line to create a payment plan — charging interest — for the banks to repay all of the fees that they didn’t pay for 10 years. Isn’t that what banks do to the rest of us when we’re delinquent on something? Jack up the interest rate and make us repay everything? They can even make a plan to help banks cope with the current economic conditions.

In any case, the FDIC needs more funds to cover the bank failures and ensure that our money is kept safe. And perhaps the banks need to step it up a bit.