FDIC seeks to triple Treasury Dept borrowing powerSo, let’s do a little translating from above… more banks are failing, we’re running out of money and need more because we expect even more to fail real soon!
By Karey Wutkowski
WASHINGTON (Reuters) - The Federal Deposit Insurance Corp is seeking to more than triple its credit line with the U.S. Treasury Department to $100 billion, a move to give it more financial power to handle U.S. bank failures, the agency said on Monday.
The FDIC and Congress are working to boost the agency's current $30 billion borrowing power in legislation being crafted by U.S. Rep. Barney Frank, chairman of the House Financial Services Committee.
The move comes as the FDIC's deposit insurance fund has shrunk due to a significant uptick in bank failures over the past year. The insurance fund's value dropped 24 percent in the 2008 third quarter to $34.6 billion.
"We would maintain that it's prudent planning to have contingency plans in place," said FDIC spokesman Andrew Gray.
The House bill being prepared by Frank would also make permanent Congress's October decision to temporarily increase deposit insurance to $250,000 per customer account. The increase was hurriedly adopted as a temporary way to increase confidence in the struggling U.S. banking system.
Frank said the FDIC's desire to increase its borrowing power is a safeguard to ensure the agency can quickly pay out insured deposits when a bank fails and the FDIC is named as a receiver.
"They have no immediate need for it, but they just want to make sure they're not constrained in the decision by a lack of the insurance fund," Frank told reporters after meeting Treasury Secretary Timothy Geithner on Monday. "They don't want to say, 'We have to keep this bank open longer than it should because we don't have enough money.'"
If the FDIC borrows funds through the Treasury Department, it would pay back the money through a special assessment on the banking industry.
“They have no immediate need for it, but they just want to make sure they’re not constrained…” In other words, they need a bazooka and Sheila and Frank are recent graduates of the Paulson School of Bazooka. Oh look, there’s Bert, their schoolmaster!
Oh, and no problemo on the money – we’ll just assess it from the banks this month and then shut them down the next. This is, in a way, Sheila Bair’s reverse Ponzi scheme! Not to worry, everything's under control. Sheila had other fine role models from the prior administration…