LEX Anticipation often proves worse than the event itself. So the Federal Deposit Insurance Corporation should stop prevaricating and borrow from the Treasury to top up its funds, as Sheila Bair, its chairman, suggested it might last week. Tapping its $500bn credit line would avoid further bank levies while the industry remains under stress. Furthermore, it would put the FDIC’s ability to close defunct banks and protect depositors beyond doubt.
Rather than yet another bail-out, this would be a loan to be repaid by the FDIC through future sales and premiums from the banking industry. The balance in the insurance fund fell to $10.4bn in June. At about 0.22 per cent of insured deposits, that is far below the statutory minimum. But this is an accounting measure – the difference between the fund’s assets and liabilities – rather than a pot of ever-dwindling cash. For starters, among those liabilities is $32bn already set aside to deal with bank failures. Meanwhile, a third of the fund’s assets are currently tied up in resolving failed banks; the FDIC expects to get that $22bn back in the future when it sells their assets. Still, the FDIC may need working capital in the meantime. A Treasury loan would provide it.
