FDIC Insurance Fund Hurt by Bank Failures

For the first time since 1992, the FDIC’s fund that protects bank deposits has fallen to a negative balance. A negative balance of $8.2 billion, in fact.

At the end of the second quarter, three months ago, the FDIC bank protection fund amounted to $10.4 billion.

Bad bank loans are the main culprit in the decline of the FDIC insurance fund. Banks set aside $62.5 billion in the third quarter to handle bad loans, but that may not be enough.

4.94 percent of all loans are now delinquent by at least 90 days.

However, this does not mean that the FDIC has no money. The organization still has $23 billion in cash on hand, and will receive a $45 billion infusion of capital from its plan to force banks to prepay three years of dues at once.

So far in 2009, 124 banks have failed.

What does all this not especially good news mean for you if you maintain money in conservative investments such as savings accounts, CDs, and money market accounts?

Are these safe investments really all that safe?

The answer is yes, in the sense that these savings accounts, CDs, and money market accounts are safer than the vast majority of the alternatives because they are backed by FDIC insurance.

Which is, in turn, backed by the full faith and credit of the United States government.