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RENEE MONTAGNE, host:

The housing bust has already led to the third largest bank failure in U.S. history, and a former chief economist of the International Monetary Fund predicted today that the global financial crisis is far from over. Kenneth Rogoff told a financial conference in Singapore he expects to see midsized banks going under in the next few months. There will even be what he called a whopper - a big bank or a big investment bank - that will fail.

In the United States when a bank fails, deposits up to $100,000 are insured. To find out more about what happens to people with money in a bank that fails, we turned, as we often do, to David Wessel, the economics editor of The Wall Street Journal.

Mr. DAVID WESSEL (Wall Street Journal): If you have less than $100,000 per person in a bank, or $250,000 in a retirement account, the government insurance fund makes good on that money. If a bank's assets aren't sufficient to cover all these deposits, then money comes out of this Federal Deposit Insurance Corporation fund to make good on that.

So you mentioned the third largest bank failure in U.S. history. That's a bank called IndyMac. And in that case the FDIC made good on the deposits, although not above the ceiling. And it's expected to cost the agency between $4 billion and $8 billion to fill that hole.

MONTAGNE: Well, of course there are people who waited in that line for hours to get their money out of IndyMac when it was in the process of failing. And some people said, well, they had more than $100,000.

Mr. WESSEL: Right. Some of those people on line probably didn't need to be there, but if you have more than $100,000 in the bank, the government does not promise to make good on it. And at IndyMac what the FDIC has said is for every dollar in the bank you have over $100,000, they'll give you 50 cents now and they'll pay you the rest if they get it when they sell off the assets. So it's unfortunate for those people.

And it's not always really rich people. Really rich people have a way of putting their money in lots of different places, spreading it among banks. It's often people who have a nice nest egg and have too much in the bank, or sometimes it's municipal governments or non-profits that have a lot of money in one bank and get burned.

MONTAGNE: Is there enough money, David, in the FDIC fund to cover all the expected bank failures?

Mr. WESSEL: Well, probably not. The IndyMac collapse is likely to erode 15 percent of the money that the FDIC has in its reserve fund. That'll bring the fund below the minimum level, which is set as a fraction of all the insured deposits. And the FDIC will probably make that clear later this month when it reports on the second quarter.

The FDIC gets its money by assessing a fee on banks. And the law says that if the tank gets too low, it has to come up with a plan to raise the fees on banks to get the level back to the required minimum over the next five years. So they'll be doing that sometime over the next several months.

MONTAGNE: Well, given all the bad news about banks these days, is it a good time for the government to be adding fees?

Mr. WESSEL: Well, the bankers say no. They say every dollar we send to Washington is a dollar we can't put out in a loan. The FDIC's response is unless the banking problems get really, really bad - much worse than they're expected to - the increase will be manageable, especially spread out over the next five years.

But if the FDIC runs short of cash, the law now provides that first they can borrow from the treasury, paying it back later with fees on banks. And if the banking crisis got really bad, history suggests that Congress would step in and simply allocate money to protect depositors who put money in the bank based on this government guarantee.

MONTAGNE: Now, you just said some people don't need to get in line if they want to get their money out of banks that they're worried about. Well, what should people do if they hear that their bank is in trouble, or worse, if they hear that it's failed?

Mr. WESSEL: Well, if you have less than $100,000 per person or $250,000 in a retirement account in a bank, you don't need to do anything. If a bank fails, the FDIC actually has a pretty good Web site which walks you through for a specific bank where you stand and what you need to do. And that's the only choice you have.

MONTAGNE: David, thanks very much.

Mr. WESSEL: You're welcome.

MONTAGNE: David Wessel is economics editor of the Wall Street Journal.

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