FDIC: We've Got You Covered

The head of the agency that insures bank deposits said Monday it has plenty of money to cover any failures this year.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. (FDIC), said the agency has set aside $22 billion to cover any projected losses over the next year, leaving $19 billion.

Just 2½ months into the year, 17 federally insured banks have failed.

Appearing on CBS' The Early Show, Bair said the FDIC does not predict how many more banks might fail this year, but did admit that "the number will go up, and it will continue to go up. But we've been preparing for this for some time, so it's well within our capacity to handle."

Just this weekend regulators shut down Freedom Bank of Georgia, with the FIDC appointed receiver. The bank's deposits and its four branches have been assumed by Northeast Georgia Bank.

The FDIC believes U.S. bank failures will cost the deposit insurance fund more than $65 billion over the next four years. The FDIC insures bank accounts for up to $250,000.

The deposit insurance fund now stands at its lowest level in nearly a quarter-century and is raising the assessment on banks and thrifts to give it more money in reserve.

"I think it's important to emphasize as the 60 Minutes piece [did] last night (Your Bank Has Failed: What Happens Next?) that we have industry-funded reserves that we are relying on to cover losses," Bair said. "Right now we've already set aside $22 billion to cover losses we project will occur over the next 12 months. After that we have $19 billion left.

"That said, though, we'd like a bigger cushion, to be prepared for all contingencies, so we are increasing our reserves, to bolster our reserves some more."

"Overall, we're fine. But it is important for people to understand, we're backed by the full faith and credit of the United States government. The money will always be there. We can't run out of money," Bair said.

"Overall we're fine, but it is important for people to understand, we're backed by the full faith and credit of the United States government. So the money will always be there. We can't run out of money."

Early Show anchor Harry Smith asked Bair about suggestions by some (including Senators John McCain and Richard Shelby this weekend) that giant banks like Citigroup which are on shaky ground should be allowed to fail: "From your perspective, is there wisdom in that?"

"I never comment on open operating institutions," Bair said. "I do think for the smaller institutions, we are closing them. We're selling off the assets, [and] transferring the deposits to healthier institutions. This does have a cleansing effect on the economy. The weaker institutions are sold up to the stronger ones. And that overall facilitates greater lending.

"It works for the smaller banks. But for the larger banks, legally right now there's no resolution mechanism for larger banks because they're really banking organizations, so there's some practical difficulties. We're supportive of the approach the Treasury Department is using right now to support through capital investments and try to write some of these institutions through a supervisory process."

For consumers who may be concerned about the safety of their deposits in "mom-and-pop" banks, Bair said that their assets are insured up to $250,000, and directed those with questions to a government Web site, myfdicinsurance.gov.