1996-2006: Those were good years. The economy was picking up steam. Somewhere around 2000, deregulation was marking another victory as derivatives and measures to allow subprime loans were approved. Banks and any number of other financial industry types were making money hand over fist. And yet they couldn’t pay FDIC insurance premiums. The FDIC begged Congress to force banks to pay their premiums, but Congress shrugged. “The FDIC fund is well-capitalized,” our legislators said. “Besides, bank failures are rare.”
Now, though, we know that bank failures aren’t all that rare when the economic conditions are right. Especially when banks are losing money due to poor decisions they made during the boom time years. There are two lessons that can be learned from the fact that now the FDIC may have to borrow to cover depositors:
Lesson 1: Personal Finance
The first lesson is a personal finance lesson that we can all learn from. The good years are when you have to prepare. The good times won’t go on forever, so you need to use the years of plenty to store up for years that may not be so good. It is important to be prepared in your personal finances.
Lesson 2: Realities of our economy
The second lesson is a bit more cynical: Banks executives have learned they can get away with just about anything. They didn’t pay their premiums, but they are still FDIC insured. And the FDIC has to pay out, because it’s the rest of us that get hurt when the deposits are lost. Bank execs have already made their money, received their golden parachutes and moved on. So the second lesson is this: While our economy looks after the big guys, no one is going to look after you. You’re on your own.