FDIC may tap U.S. banks for funds

[SlowDownFast]

http://www.reuters.com/article/businessNews/idUSTRE58L0KA20090922?feedType=RSS&feedName=businessNews

Tue Sep 22, 2009 12:22am EDT
(Reuters) - The Federal Deposit Insurance Corp may ask healthy U.S. banks to lend billions of dollars to restore the health of the depleted fund that safeguards bank deposits, the New York Times reported, citing senior regulators.

The paper said the initiative, which has gathered strong support across the board, is seen as a more attractive alternative to tapping the $500 billion line of credit with the U.S. Treasury, or yet another emergency assessment.

According to the paper, the FDIC was reluctant to approach the Treasury department for additional funds, since any new borrowing could be seen as a bailout, and have a strong political reaction.

The FDIC, whose board members were yet to reach a consensus on the issue, is expected to issue a proposed plan next week, to replenish the dwindling fund, the paper said.

The FDIC could not be immediately reached for comment.

[Zoeisright]

1. That's insane. And scary.

Seems like we're teetering on the edge again.

[FBaggins]

4. Why scary?

It's better than some of the alternatives.

If they do another assessment, then you're just damaging some of the healthy banks to pay for the dying ones. That's what insurance is for, but it's just about the worst time to hit their incomes.

If you take a loan from the treasury then the american taxpayers are more on the hook than they currently are.

This has the advantage of keeping it off of the taxpayers' dime (at least for this piece of the bailout), AND it actually HELPS the healthier banks (because it gets carried as an asset intead of a direct hit to earnings).

Of course... if the entire system collapses then the taxpayer is on the hook for the loan... but that's what would happen in a treasury loan too.

I wouldn't say that it's evidence of further "teetering", it rather implies that they expect the system to strengthen but to still have lots of banks go under over the next two years. In that environment, the FDIC assessments should restock the fund over the coming years and they'll only have a mid-term funding issue.

[SlowDownFast]

5. The thing that really stands out

after thinking about this is the level of desperation that it indicates.

In theory, the FDIC has the "full faith and credit" and a $50 billion credit line with Treasury. So why on earth would there EVER be any need for something like this.

The obvious implication is that they don't think the Treasury can actually support them when push comes to shove.

[FBaggins]

8. Nah

The treasury has an unlimited amount of money.

The concern is that they don't like how it would be viewed (that tapping it would imply that the fund is no longer solvent).

It isn't that they NEED to do something like this. They think that it could be preferable to the other options. Industry expectations had been for two more assessments over the coming months and many were worried that it would eat up the profits of the handful of banks that were still making money. This could be much better... instead of a hit to next quarter's earning, they get to add an asset to their books. Then the payments come out of future years' assessments.

So they're basically pre-paying future assesments.

[SlowDownFast]

9. No.

It's called

ONE

BIG

CIRCLE JERK

[Zoeisright]

13. That's my opinion too.

[RainDog]

2. the FDIC is funded by banks all the time

that's how it was and is funded.

the problem is that there are still too many banks that need to be audited and, in some cases, nationalized and then sold after this bad debt is reconciled - i.e. taken as a loss by those banks.

that's the problem.

[Oregone]

10. via premiums

And when the premium reserve dries up, that normally constitutes for a bankrupt insurance entity. Of course, the FDIC will never really go bankrupt unless the government did. But, being that it is scrounging for change and the risk models proved insufficient to handle this problem, it is a bit of a big deal. This isn't normal FDIC activity

On another note, it sucks to see a government insurance agency out of money (needing either a line of credit from the treasury or some other means of covering its losses). It just plays into right-wing lies that the government can't do anything right. Clearly, an idiot should know if bank insurance was private, they would of ran out money last year. This are not ordinary times.

[abelenkpe2]

3. Healthy banks?

Which ones are those?

[SlowDownFast]

6. Only an audit of the Fed would tell.

But, alas, it won't happen - despite a court ruling.

They OWN .gov now.

Welcome to the United Sachs of Goldman, citizen.

Now get in line and assume the position...

[SlowDownFast]

7. Almost forgot...

I hear The Bank of Sealy is safer than most.



on edit:

Assuming Bucky is still worth a damn in the coming future - which is a pretty big assumption.

DX chart (one year):

http://quotes.ino.com/chart/?s=NYBOT_DX&v=d12

[abelenkpe2]

14. lol!

Love the pic.

Sadly, the mattress bank does seem tempting doesn't it? Says something about the times.

So mark to market rules and transparency no longer apply?

[AtheistCrusader]

11. Why isn't the FDIC raising it's premiums?

This might have been avoided, if they had started raising it 1.5 years ago, when the magnitude of the problem was becoming clear.

[FBaggins]

12. They have (and did),

The problem is that it's a direct hit to bank profits ("profits"... yeah right) so it makes things worse for the banks on the verge of collapse (AND hurts those few "good" banks who didn't get involved in any of the problems but are still weakened by the lousy economy. So they've raised the premiums AND taken special "one-time" (again "yeah right") assessments to close the gap... but they will need more.

The mistake actually goes back a number of years to when the FDIC reduced (almost eliminated) their premiums because the fund was flush with more cash than could possibly be needed (they thought) and it was irresponsible to keep taking money from banks to overfill the fund.