FDIC may need to tap treasury

In yet another waste of tax payers money, the FDIC may have to tap treasury for more funds.  According to Sheila Bair, FDIC Chairwoman, it is to cover "short-term cash-flow" pressures.  As we have seen, short-term becomes permanent pretty fast.

The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis.

We've just had nine failures.  FDIC has troubled list of 117.  Many more than 117 are probably in danger.  Banks like WAMU are probably not even on the list.  What happens if they fail?  We are only at the beginning of this cycle and FDIC is out of money already? 

"I would not rule out the possibility that at some point we may need to tap into [short-term] lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes," Ms. Bair said in an interview. Ms. Bair said such a scenario was unlikely in the "near term."

As I said before, short-term becomes long-term (or even) permanent very quickly.  Just look at the all the lines of credit the Fed is providing. 

She said she did not expect the FDIC to take the more dramatic step of tapping a separate $30 billion credit line with Treasury, which has never been used.

It seems like no one "expects" anything bad to happen these days.  Let's see how quickly this becomes a reality.

..... The fund's balance fell in the second quarter to $45.2 billion. That is just 1.01% of all insured deposits, low by historical standards.

Once again, the lowest reserves when we need them the most.   The drivers were asleep and now the tax payers have to pay the price.

In another move to bolster the insurance fund, Ms. Bair said the agency will propose in October charging higher premiums to thousands of U.S. banks......

Trying to close the barndoor after the horses have left.  We are going to raise the rates on banks just as they have low capital and their net incomes are to lowest level since 1991. 

 

http://online.wsj.com/article/SB121977767814673649.html?mod=hpp_us_whats_news

 

 

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