This Chart Should Disturb Every American

I don't mean to be an alarmist, but I believe the title of this article is accurate.

The chart below compares the size of the FDIC's Deposit Insurance Fund -- the reserves set aside to cover the loss of insured deposits at failed financial institutions -- to the amount of insured deposits at the nation's three largest depository institutions: Wells Fargo (NYSE: WFC  ) , Bank of America (NYSE: BAC  ) , and JPMorgan Chase (NYSE: JPM  ) . In other words, the FDIC couldn't save one of these banks even if it wanted to.

Now, I know what you're saying: The likelihood that one of these institutions will fail is slim to none. And even if one did fail, it's even less likely that all of the insured deposits would be wiped out.

Fair enough, but here's the problem.

The whole purpose of the DIF is to ensure against tail risk -- that is, risk that's highly unlikely. And as we saw five years ago, the likelihood that one of these massive lenders might be at risk of failure at some point is far from out of the question.

To the second point, moreover, all of the insured deposits wouldn't have to be wiped out. In Wells Fargo's case, only 17% would have to go. I urge you to read that again. The primary fund that ensures the entirety of the nation's deposits would be wiped out if Wells Fargo went under and only 17% of its deposits were necessary to cover liabilities.

That's shocking.

If it isn't already obvious, the point is that too-big-to-fail is a problem.

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  • Report this Comment On May 03, 2013, at 6:39 PM, medgul wrote:

    what is the amount of deposits $250k and less?

  • Report this Comment On May 03, 2013, at 8:54 PM, Rusty56 wrote:

    Another foolish article, makes no sense just more spew.

  • Report this Comment On May 03, 2013, at 9:04 PM, ryanalexanderson wrote:

    The Federal Reserve prints up money if Bernanke has a bad hair day. It's their solution to every problem.

    I'm sure they'd print up all the money needed to rescue the banks.

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