Sheila Bair: FDIC Reserves To Hit Zero

When I wrote about this issue a week ago, I thought I was going to be called out for prognosticating gloom and doom as usual...Well, no such luck, in fact quite the opposite. Sheila Bair came out with some very scary words for depositors everywhere:

“Without additional revenue beyond the regular assessments, current projections indicate that the [depositor investor] fund balance will approach zero,” Bair said.

In the words of Lewis Black, I will repeat that, because it bears repeating:

“Without additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero."

This is actually one of the most terrifying news I have heard in forever, as it goes to the heart of depositor confidence problem, with a next step being the global bank run that Kanjorski was fuming about.

The reason for Bair's statement is to attempt to explain the need for the recently instituted fee increases for TLGP participants.

"Even though this increase comes at a difficult time, I strongly believe that keeping deposit insurance industry-funded will be better for you and your customers when this crisis is over."

“I’m optimistic that Congress will soon act on the borrowing authority increase,” Bair said. “This should give us the breathing room we need to reduce the special assessment, while covering all projected losses, with industry funds.”

Oh yes, let's not forget that Chris Dodd of such recent fame as the AIG bonus scandal, is trying to plough even more taxpayer money into a cause worthy of... saving taxpayer money... Still not too sure I understand how that works. But let the law of unintended consequences strike as it may.

Bair also had some very favorable things to say of the recent accounting changes proposed by the FASB which I wrote about yesterday (of course Bair will be a proponent of opacity: last thing depositors need to know is that DIF is negative among other things).

There is a minor light at the end of the tunnel.

Bair said she wants to “end too-big-to-fail” models that have shaped U.S. policy and wants financial firms to reduce systemic risk by “limiting size” and “complexity.” She said regulators “need to impose higher capital requirements” to ensure banks have enough capital to withstand worsening economic scenarios.

In the meantime, Bair is praying that nobody realizes that there is no money left to insure America's deposits, and that everyone absorbs the optimism spewing forth from the lips of CNBC's Steve Liessman like a wet sponge.

The only appropriate ending to this post are the following words:

"I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern ship building has gone beyond that."

Captain Edward J. Smith, Commander of Titanic