FDIC May Get More Borrowing Power to Stay Afloat

March 6, 2009 No Comments »

life ring

No one saw this coming…Senate Banking Committee Chairman Christopher Dodd is reportedly working on a bill that would allow the FDIC to borrow up to $500 billion from the Treasury Department.

The FDIC, which has been hit hard as a result of the mortgage crisis, would be allowed to temporarily access the funds until the end of 2010 to rebuild its fund that insures consumer deposits while creating a buffer to protect itself from ongoing bank failures.

In just two months this year, 16 banks have failed, and many more are likely to follow in coming weeks and months, as the FDIC bad bank list has grown to a staggering 252 troubled institutions.  Last year, only 25 banks failed.

A week ago, the FDIC proposed raising fees it charges member banks to rebuild its depleted deposit insurance fund (DIF), which has seen its value slide to just $19 billion as of the end of the fourth quarter.

Meanwhile, total assets at problem institutions increased from $115.6 billion to $159 billion, putting the FDIC in a precarious position.

Of course, banks objected to the notion of increased fees, as they’re under enough stress without any additional costs.

Currently, the FDIC can borrow up to $30 billion from the Treasury, though it hasn’t borrowed money in over a decade; but it also reported its first quarterly loss since 1990 in the fourth quarter.

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