At currently troubled banks labeled by the FDIC $402 billion is under their management. And as we saw last week with over $7 billion in costs for 7 failed banks, the FDIC fund is getting extremely close to requiring a government bailout...
Yet we have to ask, the FDIC has been a sign of stability for most Americans when they see the label on the bank door. Yet how can we feel confident when $13 trillion in assets are under control from the 8,000 banks and yet the actual insurance fund only has a few billion dollars (a number that is quickly approaching zero even after years of advanced premiums paid by member banks)? This number can be wiped out with two big Fridays. In reality, even one too big to fail bank would wipe out the FDIC completely. This has never been an issue of liquidity; this is an issue of solvency. The core of the problem is that many banks have too much debt that isn’t valued at what banks would like it to be valued at.
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