FDIC Prepayment Approved

The Board of Directors of the FDIC has approved the three-year prepayment of deposit insurance premiums. According to the FDIC's press release, the prepayment will amount to about $45 billion, to be collected between now and December 30th, 2009. A quote from the press release:

The pre-payment allows the FDIC to strengthen the cash position of the Deposit Insurance Fund (DIF)... While the prepayment will immediately improve the FDIC's liquidity, it will not have an impact on the fund balance.

To translate: the DIF's present balance is more or less zero, and the $45 billion is going to be shovelled out the door very quickly indeed. If the FDIC's bank closures cost around $1 billion per week, we fully expect this prepayment will be burned through in about 45 weeks or so. At that point, the FDIC will have its bank against the wall: it will have no further regular income from assessments until 2013, and 'special assessments' will become quickly onerous to a failing banking system. When that happens, the FDIC will have to either tap its lines of credit, or look for a direct bailout from the Federal Reserve or the U.S. Treasury.

But at any rate, we're pleased to introduce the Cash Burn-Through Meter; you will find it on the left, at the top of the menus. We will start the Meter at $45 billion, and with every week's closures we will subtract that value from the total prepayment. When it reaches zero we will buy a bottle of champagne.