FDIC is backed by the full faith and credit of the US government. This makes the holdings of the fund itself irrelevant -- if BofA fails, Congress will make the depositors whole with Treasuries.
Exactly. The only reason to be afraid of that is if you have zero faith in the Dollar and thereby the Treasury/US government. And while I can somewhat empathize with the sentiment, if the US government collapses, we have bigger fish to fry here in the US.
Why would the FDIC need a $50b fund, if it's backed by "the full faith and credit" of the US?
They wouldn't need any funds at all. Whenever they needed money, they'd just ask the Fed.
So, what's the $50b for, really? Or maybe, "full faith and credit" doesn't really mean what you think it means, maybe it means: "full faith and credit... maybe, in the meantime use this $50b fund while we make up our mind"
It's set up as an insurance to which the banks pay premiums to cover the losses. The $50B fund exists to prevent the american public from having to step up every time, however, it is backstopped by full faith and credit.
I actually think that if the government collapses, the FDIC is the absolute last thing to fail. Every politician understands how much of a political suicide it would be to directly fail the voters so they lose something they own in a very personal way. (As opposed to the typical government malfeasance, where the losses come from large, impersonal pools.)
If government were to collapse, I expect the last thing that the politicians would be concerned with would be the FDIC. First thing in their minds would be how to spin this so they don't end up on the business end of a militia firing squad.