SIPC Might Need a Bailout?

The Boston Globe reports:

Until recently, the little-known Securities Investor Protection Corp. was flying high, confident its $1.7 billion fund was more than enough to insure investors against brokerage failures and fraud for years to come.

For a decade, the agency did not raise how much it charged brokerage companies for insurance: only $150 a year to insure every account for up to $500,000 whether it was Merrill Lynch, a small-time broker, or admitted Ponzi scheme operator Bernard Madoff.

Then came the financial collapse of 2008, which included Madoff's $65 billion swindle. The cost of the claims in the Madoff case is expected to be in the hundreds of millions of dollars - and could wipe out the fund's assets. SIPC officials, who for years have said the fund could withstand the most severe economic shocks, now acknowledge that it is in danger of dropping far below adequate levels.

As a result, they have dramatically raised insurance rates on brokerage firms, increasing the annual fee from $150 to 0.25 percent of each brokerage's net operating revenues, which could cost millions of dollars a year at some firms. The agency, created by Congress but privately run, also has a $1 billion line of credit with the Treasury Department that it might have to tap for the first time in its history.

You'll want to read the whole article.