FDIC could fail - update

I've passed on the bad news about underfunding of the FDIC before - latterly here - and now it come to the fore again in a post from Karl Denninger.

UPDATE (7 March 2009): Jesse has a piece on it now, too. But "deposits would remain fully backed by the government,", says his source - not much comfort for the taxpayer, then.

FDIC underfunded

Two more US banks have just failed, bringing the total this year to 19:

The FDIC estimates that through 2013 there will be about $40 billion in losses to the deposit insurance fund, including an $8.9 billion loss from the failure of IndyMac Bank. The FDIC is raising insurance premiums paid by banks and thrifts to replenish its fund, which now stands at around $45.2 billion, below the minimum target level set by Congress and the lowest level since 2003.

The current target (the "Designated Reserve Ratio") is 1.25% of deposits and is discussed here. According to Mish on July 23, insured deposits in the US banking system totalled $4.24 trillion, which if unchanged now would mean the FDIC current funds represent 1.066% of the sum insured, s0 the FDIC needs to raise another c. $8 billion in premiums from banks.

The question remains, whether merely 1.25% is sufficient for present and foreseeable circumstances. Dr Marc Faber is now talking about eventual US inflation and State bankruptcy - after a near-term rally.