FDIC may need to borrow money from U.S. Treasury

August 31, 2008 by · Leave a Comment
Filed under: Economic News 

Well with investment banks, commercial banks, GSE’s already lining up at the beggar’s bowl. Why not the FDIC? Next will be the SPIC being that they are even more under capitalized than the FDIC. When will this stop is the real question, when we start monetizing liabilities we start to go down a slippery slope that gets hard to stop once you get going.

At this point I am convinced that our congress is willing to do what ever is needed to make sure we have no pain at all. Expect more inflation to come so if you are 100% in dollars, you have been warned.

Release:

Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

The borrowed money would be repaid once the assets of that failed bank are sold.

“I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses,” Chairman Sheila Bair said in an interview with the paper.

Bair said such a scenario was unlikely in the “near term.” With a rise in the number of troubled banks, the FDIC’s Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.

In a bid to replenish the $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.

The agency also plans to charge banks that engage in risky lending practices significantly higher premiums than other U.S. banks, Bair said.

The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.

The fact that the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.

Source: Reuters

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