The Federal Deposit Insurance Corporation (FDIC) might be broke.

Created in 1933, the FDIC is the federal guarantor in charge of insuring that bank deposits of up to $100,000 are returned should a bank go under. Historically, the FDIC has had a fairly easy job—on average only six banks go bust a year.

However, during times of financial crisis such as the Savings and Loan Crisis of the early ‘90s and today, the FDIC can quickly find itself overwhelmed by the number of bank failures. Which is why I was extremely concerned to hear that FDIC Chairman Sheila Blair has hinted that the FDIC may need to borrow from the US Treasury.

It’s clear the FDIC has been bracing for trouble for some time now. It’s already increased its bank failures staff by 60% in the last year, including bringing 69 retirees back to work. And it’s planning on leasing a 125,000 square feet of office space in Dallas to house its ever-growing number of new-hires.

That’s pretty worrisome, but not nearly as disturbing as the prospect of the FDIC borrowing money from the US Treasury. I’ll explain…

The last time the FDIC borrowed from the Treasury was during the S&L Crisis in the late ‘80s / early ‘90s. At that time, some 2,100 banks went under. Similarly, the FDIC’s list of problem banks at the time included 1,500 banks. And yet, the FDIC didn’t need to borrow money until the tail end of the crisis.

So to see rumors circulating that the FDIC may need to borrow from the Treasury this early in the current financial crisis is truly worrisome. Consider the following…

• Thus far we’ve only seen nine banks go under.
• The FDIC’s list of “problem” banks contains only 117 banks.

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