That FDIC insurance doesn't come free
The FDIC's guarantee on our bank deposits is, in fact, an insurance system, not something financed with taxpayer money. In tough times, banks pay higher premiums for that insurance. Steve Henn reports.
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Kai Ryssdal: After IndyMac collapsed a month ago, we all started paying a lot more attention to that sign on the doors of our banks. The one that says deposits insured up to $100,000, and then, right in the middle are the letters F-D-I-C. The FDIC does guarantee our deposits, but it's not financed with tax payer money. It's an insurance system. Banks pay premiums for that protection, just like you might for your home or car. And when a financial storm hits, those premiums go up. Marketplace's Steve Henn reports.
Steve Henn: Insurance rates that banks pay to the FDIC are likely to rise and consumer could pay the price. William Isaac a former chairman of the FDIC.
William Isaac: Obviously any expense a bank has gets passed along.
He says banks could cut savings rates and hike interest on loans, but there's a bigger problem. For every dollar a bank holds on its books, it typically makes $10 in new loans. So, if the FDIC by increase insurance premiums this fall to raise a billion dollars...
Isaac: That's $10 billion dollars that isn't going to get loaned to businesses and consumers
And that's a drag on an economy that's already struggling.
Isaac: I've always felt that the time to raise deposit insurance is not when times are bad, but when times are good.
That sounds like a smart strategy to James Chessen at the American Bankers Association, but he says recent banking losses have been so large, an FDIC rate hike is inevitable.
James Chessen: But hopefully as they see the revenue coming in they would quickly start ratcheting down those premiums.
Next year, even without a rate hike, banks are expected pay roughly $4 billion in premiums to the FDIC.
In Washington, I'm Steve Henn for Marketplace.
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