FDIC Ads: Should We Be Worried?

Posted In: Banking Crisis, Commercial Real Estate, Construction, Currencies, Dollar, Financial Sector, Gold, S&L Crisis, U.S. Government, U.S. Treasury Dept.

Leafing through the June 30 issue of Time magazine, I stumbled upon an advertisement from the Federal Deposit Insurance Corporation, or FDIC…

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For those readers not familiar with the FDIC, their mission, according to their website, is to preserve and promote public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $100,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

Now, the FDIC says the ads were meant to commemorate the seventy-fifth anniversary of its creation as an “independent agency” of the U.S. government. However, some suspect there may be an ulterior motive for the ad program. Keep in mind that back on February 26, I discussed in a post how the fourth quarter of 2007 was the worst bank and thrift performance since the fourth quarter of 1991, whereas the FDIC classified 76 banks as “problem” institutions for the quarter (up from 65 a quarter earlier). In addition, it was revealed that the FDIC was looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

Additional justification for the FDIC to roll out a “reassurance campaign” appeared in the following months. On June 5, John Poirier of Reuters talked about an appearance by Federal Deposit Insurance Corporation Chairman Sheila Bair on Capitol Hill, and wrote:

An increasing number of banks face high exposure to deteriorating conditions in commercial real estate and construction lending, Bair told a Senate Banking Committee hearing on the state of the banking industry.

“There is also the possibility that future failures could include institutions of greater size than we have seen in the recent past,” Bair said. “Uncertainties in today’s economic environment continue to pose significant challenges for the banking industry, households, and bank regulators.”

So far this year, four small U.S. banks with deposits insured by the FDIC have failed, up from three in 2007. The agency last week boosted its list of troubled banks to 90, which have a combined $26 billion in assets.

Ironically, the FDIC ad I came across featured a photo of the $100,000 Series 1934 Gold Certificate featuring the portrait of President Wilson, the largest denomination of currency ever printed by the Bureau of Engraving and Printing. Nothing more comforting than seeing the words “insuring” and “protecting” next to the image of a U.S. gold certificate with the phrase “one hundred thousand dollars in gold payable to bearer on demand as authorized by law.” Too bad those dollars sitting in banks across the United States haven’t been backed by the precious metal since 1971, when President Nixon abandoned the Bretton Woods Agreement and effectively took the U.S. off the gold standard. As the U.S Treasury says on its website:

Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything.

Oh, Tricky Dick, what another fine mess you’ve gotten us into…

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Source:

“UPDATE 1-Bigger U.S. bank failures may be coming – FDIC”
John Poirier
Reuters, June 5, 2008

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