Taxes Don't Pay for Bank Failures

In the wake of 2009's 100th bank failure, the FDIC is trying to get the word out:  taxpayer money does not cover FDIC insured deposits.

Sheila Bair stressed yesterday that FDIC insurance funding comes from contributions of member banks.  FDIC insured banks pay into the fund in case other FDIC insured banks fail.

While money doesn't come directly from the US Treasury, somebody pays for it.  As insurance premiums erode banks' returns, they'll pass it on to us in the form of higher loan rates or lower deposit rates.  Also, the FDIC technically has the backing of the US government - so if things got really really bad we'd be on the hook for losses.

I can see why Bair is making this distinction, but I don't think she'll get much mileage out of it.  Most "bailout fatigue" seems to be a result of huge payments to firms that survived, not the $25 billion of losses to FDIC's insurance fund.  Perhaps that's her point.

• What Happens in a Bank Failure?
• How FDIC Insurance Works