It appears I may have significantly underestimated the amount of failed bank deposits in 2009 when I projected they would triple the 1931 level:
Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter….
Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.
$193 billion is 2.56 percent of total US bank deposits. Added to the $37 billion that have already failed this year, that would bring the 2008-2009 total to 6.26 percent, which is triple the 1930-1932 total… in fact, it would be nearly 57 percent more than the total failed bank deposits in the THREE years from 1930-1932.
The danger with the deposit insurance approach is that it keeps the bank panic problem under wraps until the FDIC runs out of money and all of the panic it was designed to prevent is unleashed at once in the ensuing chaos. If this is “recovery”, can you imagine what a “depression” would look like? Oh, and about that “guarantee”:
TITLE IX–FULL FAITH AND CREDIT OF FEDERALLY INSURED DEPOSITORY INSTITUTIONS
SEC. 901. REAFFIRMATION OF SECURITY OF FUNDS DEPOSITED IN FEDERALLY INSURED DEPOSITORY INSTITUTIONS.
(a) FINDINGS.–The Congress finds and declares that–
(1) since the 1930’s, the American people have relied upon Federal Deposit insurance to ensure the safety and security of their funds in federally insured depository institutions; and
(2) the safety security [sic] of such funds is an essential element of the American financial system.
(b) SENSE OF CONGRESS.–In view of the findings and declarations contained in subsection (a), it is the sense of the Congress that it should reaffirm that deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States.
I can’t help but notice that “it is the sense of the Congress that it should reaffirm” != “it is the case that”. Especially when the original affirmation was a non-binding joint resolution. (H.R. Con. Res. 290) It’s a statement of intent, not a legal guarantee.