The Federal Deposit Insurance Corp. has agreed to guarantee as much as $1.4 trillion in loans that banks make to one another, adding to the potential cost of the government efforts to stabilize the financial-services industry.
The measure approved Friday by the FDIC's directors is designed to spur lending between banks, and is part of the Temporary Liquidity Guarantee Program launched in mid-October.
According to the FDIC's announcement, the guarantee plan covers the newly issued senior unsecured debt of banks, savings and loans and certain types of holding companies. It also provides full coverage of non-interest-bearing transaction accounts.
The guarantees apply to any interbank borrowing of more than 30 days, which are issued on or before June 30, 2009. The guarantees will run until the debt matures or until June 30, 2112, whichever is earlier.
On the same day the FDIC's directors approved the plan, government regulators shut down three banks and savings and loans -- the biggest one-day total since the financial crisis began.
Federal authorities seized Downey Savings and Loan in
Regulators also closed Community Bank of Loganville, on the eastern edge of the
How does the FDIC insure that much money? Certainly they don't have it set aside so are they betting on more successes then failures? Is there a way to find out how much the FDIC has on the financial statements? I guess what I am questioning is: how can you just pull a number like that out of thin air and not be able to fulfill the obligation which I assume they can not. Where is this money coming from?