Brian Angliss notes that the FDIC is levying a huge 20 cent per 100 dollars on deposit at the bank fee. He notes that the largest banks, having received lots of TARP money, will be able to pay that off using their taxpayer money, while smaller banks will get hammered and may either go under or be forced to cut back on jobs, branches and so on.
But Brian seems to take the FDIC’s announcement that they are doing this to improve confidence at face value. I think, rather, the FDIC has made this sudden cash grab for a different reason: it needs the money for Geithners plan to buy up toxic assets.
Remember that the FDIC is providing most of the cash of the first part of the plan, up to 850 billion dollars worth of it. That’s a lot of money. Of course, the levy won’t raise that much, but it can and will be leveraged to buy up the toxic assets. So what is taken away from the banks will be given back, in the form of removing toxic assets at overvalued prices.
The question though, is which banks will benefit. By and large, so far, the largest banks have received the majority of help from the Feds. If assets are not proportionally bought from all the banks (and they won’t be) this could well lead to exactly what Brian fears—money being taken from small banks disproportionately, which will damage them and cause many to fail.
