http://www.securagroup.com/news/archives/articles/2008/AB080827.pdf
When I became Chairman of the FDIC in 1981, the FDIC's financial statement showed a
balance at the U.S. Treasury of some $11 billion. I decided it would be a real treat to see all of
that money, so I placed a call to Treasury Secretary Don Regan:
Isaac: Don, I'd like to come over to look at the money.
Regan: What money?
Isaac: You know . . . the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that's a bit of a problem.
Isaac: I know you're busy. I don't need to do it right away.
Regan: Well . . . it's not a question of timing . . . I don't know quite how to put this,
but we don't have the money.
Isaac: Right . . . ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has
been turning the money over to the Treasury, and the Treasury has been
spending it on missiles, school lunches, water projects, and the like. The
money's gone.
Isaac: But it says right here on this financial statement that we have over $11 billion
at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay
interest on it.
Isaac: I know this might sound pretty far-fetched, but what would happen if we
should need a few billion to handle a bank failure?
Regan: That's easy we'd go right out and borrow it. You'd have the money in no
time . . . same day service most days.
Isaac: Let me see if I've got this straight. The money the banks thought they were
storing up for the past half century sort of saving it for a rainy day is gone.
If a storm begins brewing and we need the money, Treasury will have to
borrow it. Is that about it?
Regan: Yep.
Isaac: Just one more thing, while I've got you. Why do we bother pretending there's
a fund?
Regan: I'm sorry, Bill,
FDIC May Borrow Money from Treasury: Report
http://www.fdic.gov/bank/individual/failed/banklist.html
By ReutersCNBC.com
| 27 Aug 2008 | 05:45 AM ET
Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.
The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.
The borrowed money would be repaid once the assets of that failed bank are sold.
"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," Chairman Sheila Bair said in an interview with the paper.
Bair said such a scenario was unlikely in the "near term." With a rise in the number of troubled banks, the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.
In a bid to replenish the $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.
The agency also plans to charge banks that engage in risky lending practices significantly higher premiums than other U.S. banks, Bair said.
The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.
The fact 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, the Journal said.
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