Federal Deposit [fill in the blank] Corporation

Oops! It looks like Congress took the “I” out of FDIC in the 90’s and early 00’s, and now the FDIC’s fund is running low:

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.

So instead of charging legitimate premiums on the insurance that the FDIC was giving banks during the economic booms of the late 90’s and mid 2000’s, the FDIC wasn’t allowed to “insure” against what might happen if, and who could have pictured this (certainly not those who came up with the idea of insuring bank deposits during another notable big recession), the boom times ended, and banks started to fail. 

The FDIC, which by law must insure the deposits it says it will insure, is now asking Congress (and various agencies in the executive branch) for authority to borrow up to $500bn from the Treasury to make up for the shortfall. That makes the FDIC the second major insurance corporation (one public, one private) to have to take money from the United States Treasury to pay out insurance money, aka fulfill its sole pledge to customers. Whichever insurance “experts” were advising Congress to allow the FDIC to lay off collecting premiums and telling AIG that they had plenty of money to cover their credit default swap business might want to consider getting into another line of work.

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