September 22, 2009

FDIC may borrow from banks

Senior regulators say the Federal Deposit Insurance Corp. is contemplating borrowing money from healthy U.S. banks to keep its deposit insurance fund solvent.

The about-face -- having banks bailout the government for a change -- is a nice irony, Karen Shaw Petrou, managing partner of Federal Financial Analytics told The New York Times.

But, bankers said it was the best of several options, including having the FDIC tap a $100 billion line of credit at the U.S. Treasury.

With their relationship strained, FDIC Chairwoman Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help, Camden Fine, president of the Independent Community Bankers, told the Times.

Banks also balk at higher FDIC fees that could cut into profits and, ironically again, cause more bank failures.

There have been 94 bank failures in 2009, bringing the FDIC's funding to the point where one large failure could deplete its insurance fund, which is down to about $10 billion.

Borrowing from healthy banks, instead of the Treasury, has the advantage of keeping this in the family, said Karen Thomas, executive vice president of government relations at the Independent Community Bankers of America.