Economy

Georgian Bank in Atlanta Georgia was the 95th institution to fall prey to bad loans and real estate woes and more failures are predicted in the months and years to come. What could be worse? Analysts believe that failures could result in an insufferable depletion of the FDIC's insurance fund for deposits, which has already reached its lowest point in nearly 20 years.

The FDIC is fully backed by the government; however, there is only so much money in the fund for deposits. In June, the FDIC's fund fell to $10.4 billion, which is extremely low, yet, it is expected to need to spend an additional $70 billion to support bank failures by 2013.

The FDIC's takeover of Georgian Bank alone is expected to cost $892 million as it has to cover each depositor's account for up to $250,000. Currently, there is $21.6 billion in cash, along with the insurance fund, which means the money to support banks is still insufficient as it tries to manage the multitude of banks closing their doors.

To try to keep up, the FDIC is considering a number of options, including borrowing from healthy banks, tapping its $500 billion credit line with the Treasury Dept., or imposing a special fee on the banking industry. In the meantime, the Treasury Dept and federal bank regulators are looking at new banks to see which ones might qualify for bailout funds that didn't in the original group receiving $700 billion. To date, there are a whopping 416 banks on the list.

Bernanke recently noted that the recession is "technically" over, but it certainly doesn't show in the seemingly continued weakening of the economy.

Have you been affected by any of the 95 bank closures? What was your experience?

The House Financial Services Committee Chairman is pushing for legislation to change bank overdraft policies, many banks are beating him to the punch by adjusting policies on their own. Bank of America and J.P. Morgan Chase have already taken steps toward change, and Wells Fargo plans to do the same.

Here is a breakdown of the proposed changes:

• Bank of America will eliminate fees for customers if overdrafts are less than $10 within one day. BOA will also collect no more than four items of overdraft per day (previously it was 10 items per day).
• J.P. Morgan will stop charging fees for customers if overdrafts are less than $5 in one day.
• Wells Fargo & Co. plans to stop charging fees if overdrafts are less than $5 a day and also plan to collect fees on no more than four items per day.

Committee Chairman, Barney Frank (D., Mass), and Senate Banking Committee Chairman, Christopher Dodd (D., Conn.), are both planning to push legislation to change bank overdraft policies, such as requiring banks to request permission before enrolling customers in overdraft programs. The Federal Reserve is also considering strong restrictions on overdraft fees - this could be finalized by the end of the year.

In making changes, banks will lose significant revenue. According to a recent study conducted by the Federal Deposit Insurance Corp., customers are getting hit with fees that range from $10 to $38 a pop. This translated into an estimated $1.97 billion in insufficient-fund fees in 2006 alone, according to surveyed banks.

This is good news for consumers who have had problems with overdraft fees. Especially since so many people are struggling to manage their finances in this somewhat bleak economy. Until legislation is passed, hopefully more banks will make changes on their own.

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