Let me start by saying I know nothing about Economics. I barely passed the intro course in college so read this for whats its worth.
The FDIC (Federal Deposit Insurance Corporation) currently insures up to 100,000 on checking and savings accounts. This is the government safety net that was put in place after the Great Depression. The idea is when the financial system looks gloomy, no one will rush to the bank to withdrawal there money because they'll know it's insured. So you might ask, where does this reserve come from? Well the DIF (Depositor's Insurance Fund) is derived from premiums lenders pay based on the risk level of their assets. What surprising is the current DIF is only (don't rush to your bank yet..) around 1 percent of the total exposure to insured funds. Currently the reserve is around 40 billion and the total of insured deposits is around 4.29 trillion. Now it gets worse, Bailout Part Deux is pushing to have the insurance per account raised to 250,000 (recommend by Obama and McCain). This only makes the ratio worse, now granted mostly insured accounts mostly likely are not over 100,000, but every account this is over is increasing that exposure. So now how does the DIF increase to maintain that already small ratio of 1%. Well it has to be increased Bank Insurance premiums, right? Which I thought the bailout was supposed to help the Banks... but now its looking like there going to have to pay more. How does this free up credit? This bailout never made much sense to me and now it makes less sense. The unfortunate part is it now stands a better chance of being passed.
All the numbers here are from http://en.wikipedia.org/wiki/FDIC
The FDIC (Federal Deposit Insurance Corporation) currently insures up to 100,000 on checking and savings accounts. This is the government safety net that was put in place after the Great Depression. The idea is when the financial system looks gloomy, no one will rush to the bank to withdrawal there money because they'll know it's insured. So you might ask, where does this reserve come from? Well the DIF (Depositor's Insurance Fund) is derived from premiums lenders pay based on the risk level of their assets. What surprising is the current DIF is only (don't rush to your bank yet..) around 1 percent of the total exposure to insured funds. Currently the reserve is around 40 billion and the total of insured deposits is around 4.29 trillion. Now it gets worse, Bailout Part Deux is pushing to have the insurance per account raised to 250,000 (recommend by Obama and McCain). This only makes the ratio worse, now granted mostly insured accounts mostly likely are not over 100,000, but every account this is over is increasing that exposure. So now how does the DIF increase to maintain that already small ratio of 1%. Well it has to be increased Bank Insurance premiums, right? Which I thought the bailout was supposed to help the Banks... but now its looking like there going to have to pay more. How does this free up credit? This bailout never made much sense to me and now it makes less sense. The unfortunate part is it now stands a better chance of being passed.
All the numbers here are from http://en.wikipedia.org/wiki/FDIC
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