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Is the FDIC Trying to Tell Us Something?

Friday, June 20, 2008 - Vol. 10, No. 148
Is the FDIC Trying to Tell Us Something?
Today's comment is by Eric Roseman, Investment Director and editor of Commodity Trend Alert.

Dear A-Letter Reader,

Something smells a little fishy to me...The Federal Deposit Insurance Corporation (aka the "FDIC") just launched a series of full-page advertisements in U.S. newspapers. On the surface, these ads are celebrating the FDIC's 75th anniversary.

According to the ad, the latest campaign, published in Monday's Wall Street Journal, celebrates the institutions' long-term safety net of public funds up to US$100,000.

The full page, and no doubt expensive, ad serves to remind depositors that the FDIC is there to protect cash deposits and CDs.

In all my years of reading the Journal and other financial newspapers, I've NEVER seen the FDIC advertise their work.

So doesn't it seem a little suspicious that the FDIC took out a full-page ad in the midst of the country's worst financial crisis since 1990?

I've got to wonder if the FDIC is firing a warning salvo ahead of a rash of small bank failures in 2008 and possibly, in 2009.

Are more banks likely to fail? Maybe the FDIC wants to remind depositors that the government ONLY guarantees your cash deposits and CDs up to US$100,000.

The Birth of the FDIC

The government created FDIC during the Great Depression. At the time, businesses were collapsing and bank failures riddled the economy. From 1920 to 1934, a total of 9,812 banks were suspended, closed, failed or merged, according to Colonial Statistics.

From March 6 to March 13, 1933, President Roosevelt declared a banking holiday. During that week, all financial institutions were closed and depositors could not access their funds. During the Great Depression, the Roosevelt administration also confiscated gold ownership.

The number of U.S. bank failures since the onset of the credit crisis last July is still under 100. But from 1988 to 1990, over 1,000 American banks failed, mostly because of the Savings & Loans crisis.

By tejasmarcos on Jun 20, 2008, 13:25 in Off Topic.