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FDIC swept up in financial crisis
The federal bank insurance fund has slipped below the minimum target level set by Congress.
By MARCY GORDON
Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.
The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual, the nation's largest thrift, or another struggling rival fails, economists and industry analysts said.
Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of Bear Stearns to J.P. Morgan Chase. On Tuesday, the Fed agreed to provide an $85 billion emergency loan to American International Group.
Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators. Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.
''It is important for people to understand that the deposit insurance fund, like all federal trust funds, is simply an accounting entry with the U.S. Treasury. . . . The U.S. Treasury will advance whatever cash is needed by FDIC to address bank failures and make good the deposit insurance guarantee,'' said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.
Treasury Secretary Henry Paulson said this week the country's commercial banking system ''is safe and sound'' and that ''the American people can be very, very confident about their accounts in our banking system.'' FDIC officials also have said 98 percent of U.S. banks still meet regulators' standards for adequate capital.
But fear is growing on Main Street and Wall Street about the likelihood of bank failures and the strain that would put on the FDIC.
FDIC Chairman Sheila Bair has not ruled out the possibility of going to the Treasury for a short-term loan at some point. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with Treasury -- something that has never been done.
The FDIC's fund is currently below the minimum set by Congress in a 2006 law. The failure of IndyMac Bank in July cost $8.9 billion.
Next month, Bair plans to propose increasing the premiums paid by banks and thrifts to the fund. That plan is likely to be approved by the FDIC board, which consists the Comptroller of the Currency, the Thrift Supervision Director and two other officials.
FDIC swept up in financial crisis - 09/18/2008 - MiamiHerald.com