Friday, July 2, 2010

Assistance to Banks to Reap Billions in Profit: Part III, FDIC

The assistance to the financial sector has provided generous returns through not only TARP and the Federal Reserve programs, but also FDIC programs. During the crisis, the FDIC instituted the Temporary Liquidity Guarantee Program (TLGP) to guarantee banks’ debt for up to three years and fully guarantee deposits in transaction accounts. “The TLGP program has been a money maker for us," FDIC Chairman Sheila Bair said in Senate testimony, as participating banks pay fees for both guarantees provided through the program. [1]

As of December 31, 2009, the total revenues collected were $9.491 billion (not including additional surcharges that help support the FDIC’s deposit insurance fund). No new debt can be issued under the program, which closed on October 31, 2009. While the transaction account guarantee program was recently extended through an FDIC Board decision, a further extension is also included in the Conference version of the financial reform bill.

Perhaps President Obama summed up the profit realized from all the banking programs best:

“…assistance to banks, once thought to cost the taxpayers untold billions, is on track to actually reap billions in profit for the taxpaying public.” [2]

1. FDIC Chairman Bair (transcript of Q&A) before the Committee on Banking, Housing and Urban Affairs, U.S. Senate. May 6, 2009.
2. Speech at the Brookings Institute, December 8, 2009.

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