“…let me state the simple fact that when you deposit money in a bank the bank does not put the money into a safe deposit vault. It invests your money in many different forms of credit-bonds, commercial paper, mortgages and many other kinds of loans. In other words, the bank puts your money to work to keep the wheels of industry and of agriculture turning around. A comparatively small part of the money you put into the bank is kept in currency -- an amount which in normal times is wholly sufficient to cover the cash needs of the average citizen. In other words the total amount of all the currency in the country is only a small fraction of the total deposits in all of the banks”

— President Franklin D. Roosevelt, March 12, 1933

Go into almost any bank lobby today and you’ll see a comforting Federal Deposit Insurance Corp (FDIC) sticker advising you that your money is insured. Thanks to the FDIC, your bank deposits are covered up to $250,000, thus no need for concern.

You think?

The basic assumption about the FDIC is that no matter what happens to your bank, your deposits are safe. This has served to lull the average depositor’s sense of security about the financial health of their bank. No need to check the balance sheet, after all, if there’s the FDIC out there to insure against any risk of bank failure.

However, it is beginning to occur to the FDIC as well as some banking customers that its resources are not infinite. Since June 2008, the FDIC has had to cover deposits as more than 250 banks have failed. The FDIC’s funds were at the $10 billion mark in June, down from $40 billion a year ago. Two weeks ago Richard Bove, an equity researcher at Rochdale Securities predicted that another 150 to 200 banks may yet fail as the economy continues to work its way out of overleveraged quicksand. If that comes to pass, the FDIC will have to come up with some more money, because $10 billion won’t cover the losses.

Where will the FDIC get that cash? Well, how about a loan? Most of it will come from the taxpayers in the form of borrowed money from the United States Department of Treasury, which has extended a $100 billion line of credit to the FDIC. The rest will come from bank customers. That’s because ultimately, it will be the customers who likely will be paying one way or another for the special assessments the FDIC will be levying against member banks.

The industry and market watchers expect more member banks to be hit with FDIC fees by the end of this year and more by the middle of 2010. This likely will translate into higher interest rates on certain types of loans by member banks, lower rates on deposits, and special fees for certain services.

Developed on the heels of the bank failures of 1933, the FDIC has maintained its mission of monitoring the health of banks, and underwriting the deposits of Americans within reasonable limits. But it’s foolish to assume it all happens for free. Perform due diligence prior to making your deposits and discuss with your bank’s branch manager the most affordable ways to keep your savings secure.

Armand Nardi is the publisher of the Gainesville Daily Register. He can be contacted at anardi@ntin.net.