Name the last recession you can think of where the FDIC was screaming bankruptcy? Bloomberg’s article today is stating that the FDIC may go bankrupt this year has the very real potential to cause bank runs. Evidently the FDIC Chairman Sheila Bair said the deposit insurance fund could go bankrupt amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry.

The FDIC (Federal Deposit Insurance Corp) is what’s used to protect your bank assets. In the event the FDIC goes bankrupt, the Federal Government would have to institute a bailout, unlike other bailouts, this one would be absolutely necessary. Your money is protected under the FDIC… but if the FDIC was bankrupt it would mean you have no insurance for your money in the bank.

“A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”

It’s highly unlikely this will happen.. there is no way Washington would allow the FDIC to crash like this, but the Bloomberg article is not responsible journalism.

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