Two Steps Forward and Three Back

by Marilou Moursund on August 31, 2009

in Banks,Credit Crisis,FDIC,Fiscal Policy,TARP

The government reported about $4 billion in profits from its investments in eight of the largest banks that have repaid their loans from the TARP program.  This is good news for a financial system that was in crisis just a year ago.

However, many smaller banks continue to fail.  Three more were announced on Friday bringing the total for the year to 84, and the FDIC’s Deposit Insurance Fund (DIF) is under increased pressure.  The DIF’s funds come from fees charged to member banks, but it looks likely that the Treasury is going to have to provide some taxpayer assistance to the DIF.  The FDIC can also raise the fee it charges, and this will cause downward pressure in bank margins.

The FDIC is also entering into loss sharing agreements with banks that are taking over troubled banks, and this is another potential area of increased hits in the future.

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