FDIC Possibly to Seek Its Own Bailout, from Banks

The New York Times says that the FDIC is running out of cash, because of the wave of bank failures since the recession began. According to the report, regulators are seriously considering a plan to have the nation’s healthy banks lend them billions.

The FDIC normally gets its funds from assessments on insured banks, and interest on U.S. Government securities it holds. Those funds are running out because of the sheer number of bank failures, however.

The alternatives for the FDIC are tapping an existing $100 billion credit line to the Treasury, which they need no approval to do, or another across-the-board emergency assessment on banks, as opposed to the loaned funds.

The current tally shows that since January the FDIC has had to seize 94 failing banks. Its cash balance now stands at about $10 billion, or about 1/3 its size at the start of the year. That's despite a special assessment imposed on banks a few months ago to keep the fund afloat.

A 1991 law during the prior "Savings and Loan" crisis is what would enable this sort of borrowing from healthy banks. The banks receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry; those bonds are listed an asset on the financials of the lending banks.