I got curious so I went to the FDIC site to find out what they do with all that money.It must be a lot, because they have to pay off in case of a failure. Very informative site, but not much that I could find about what I want to know. I’ll look some more, but I have trouble paying attention.
Are they like the USPS, in that they set their rates (what they charge banks for the insurance) so not to make a profit?
Did you know you can buy assets from the FDIC? Real estate, office furniture, etc?
Peace,
mangeorge
The best information I could find on the site was nine years old (pdf), but hey, it’s the government, and I imagine the story for the last nine years is pretty similar.
Check out Table A-3 at the back of the report, which shows income, assessments, and expenses of the Bank Insurance Fund from 1933 through 1997. Note that total assessment income ($53.1 billion, less $6.7 billion in credits) almost exactly balances total disbursements of $41.3 billion plus $6.3 billion in administrative expenses.
Yep. In a sense, they do make a “profit”, because they collect assessments first, invest them in Treasury bills, credit themselves with “investment income” (total $29.6 billion) which they build up into a “reserve fund”, and pay claims out of the fund when banks fail. At the risk of setting off a Social Security debate, which I trust the moderators will squelch, there is an element of unreality in this fund, since it represents claims against the federal government by the federal government. For our purposes, we need only note that the BIF typically collects money first and pays it out later, and this payment pattern would indeed result in accumulation of assets for a private entity.
Indeed–they liquidate failed banks! Note that from 1992 through 1994 net “insurance payouts” were actually negative (that is, money was flowing in) as FDIC liquidated the wreckage it had accumulated during the disastrous late 1980’s and early 1990’s.
Why is this any more unreal than, say, a private insurance company’s fund that is intended to pay off future claims? Or any other fund (private or government) intended for a specific set of future payments (pensions, the cash put into a bank account to cover tomorrow’s payroll checks, etc.)?
Insurance companies invest such funds in obligations of other entities, not in their own bonds. If I own an IOU from you, it’s real. If I own an IOU from myself, it isn’t.
Seems to work well. I haven’t heard any big time griping about the cost of the system, and my bank’s fees certainly aren’t outrageous.
I have no complaints about the USPS either. In my opinion they’re one of the biggest bargains out there.
Hmmm. A model for our generally crappy health care system?