How much safety net is FDIC insurance?

Question

Given the recent IndyMac failure I was checking on FDIC insurance for my bank deposits. It ws shocking to hear the stats -- there are ~6 Trillion $ deposits across US, 4.5T of which are "FDIC insured" accounts.

Now, the FDIC has (as of 2007 end) mere 52B $ in the reserves, That is 1.19% of the total assets they are trying to back up.

With last 5 bank failures, FDIC has lost 10% of their reserves.

That looks like a very dangerous stats to me. If extrapolated, another 50 banks under water and FDIC will be pretty much bankrupt.

Are my assumptions right? Given the risky loans and all big banks which seemed safe going belly up, is the day where FDIC is bankrupt a realistic thought? What happens when the govt security safety net itself fails?

Or, is 1.19% reserves in FDIC a common scenario?

Answer 1

FDIC can raise more money by going to the banks (i think...) and doing something (i kind of forgot, but there are ways for the FDIC to get more money...)

There are banks that are strong enough to "weather the storm" and and there are at least some of the 4.5T accounts in those banks. Also, i think there are various $ amounts in those accounts, so the FDIC would pay out various amounts (i think..) Maybe its a good time to take some of the money out and spend it too....

Answer 2

FDIC insurance obligations are backed by the full faith and credit of the United States.

The United States prints the money. The US government can, if necessary, pay an infinite amount of dollar-denominated obligations. What it might do to the value of the currency is another question.

Answer 3

Congress will authorize aditional taxpayer money be given to FDIC if the situation requires it.

So as long as you don't keep $100,000 in a single bank, you are 100% protected.