Bank Insolvency, who bails out FDIC?

Factual Questions
1

Hi all, I’m a new member, and this site looks fantastic.

So this question kept me up last nite, and I didn’t exactly get great answers from Google. If the dollar were to collapse a la Great Depression, who would bail out the banks if the FDIC itself was bankrupt? To take it a step further, what if it was foreign currency deposited in a U.S. bank? I’m assuming the coverage would only be for dollar denominated investments.

2

The FDIC is backed by the full faith and credit of the US government. Thus, if the FDIC goes bankrupt (not likely) money would have to be allocated out of the Federal budget. It is possible the government could refuse, but hardly likely.

3

Regarding foreign currency… it appears to be covered as well read

4

nobody remembers the S+L bailout our current president was involved in, bailed out by us, the American taxpayers

swept under the rug by his dad, sitting president at the time

you didn’t think they’d accept a loss, did you?

5

head_dead:

That was not George W, it was his brother Neil.

6

As others have stated, the FDIC is backed by the full faith and credit of the U.S., i.e., the taxpayers. I’m only posting to mention that you seem to have a misimpression of what the “collapse of the dollar” issue is about. The main risk is not to the FDIC. Deposits are obligations of the banks. If they are withdrawn, the bank still has its assets (loans and other investments). If a lot of deposits are withdrawn in a short time frame, the banks would have to do something to raise cash quickly, but that’s a cash flow problem, not an insolvency problem. Even if the FDIC had to get involved, it ultimately would be able to cover the cost by liquidating the failed bank’s assets. In fact, most of the “deposits” we’re talking about are treasury bonds, so it’s unlikely the FDIC would be involved if there were “a run on the dollar.” By contrast, in the S&L debacle, the problem was that the assets were greatly overstated, so there was insufficient money to satisfy depositors and the feds ended up footing a large part of the bill.

What flight of foreign investors from dollars really would do, BTW, is impact balance of payments and the federal government’s cost of borrowing. Potentially big problems about which pundits have been warning for decades. So far, thankfully, tain’t happened.

7

Thanks for the information, much to follow up on!

8

head_dead, politically charged comments are not permitted in GQ.

Please read all forum rules before posting.

Thanks.

-xash
General Questions Moderator