FDIC May Ask Banks for a Bailout

NYTimes via CNBC ^ | September 21, 2009 | Stephen Labaton

[CutePuppy]

Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.

“It’s a nice irony,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company. “Like so much of this crisis, this is an issue that involves the least-worst options.”

Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.

The Federal Deposit Insurance Corporation, which oversees the fund, is said to be reluctant to use its authority to borrow from the Treasury.

Under the law, the FDIC would not need permission from the Treasury to tap into a credit line of up to $100 billion. But such a step is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained.

“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

.....

[CutePuppy]

Sheila Bair - a shining example of "Pride goeth before a fall" But that's what vaunted "team of rivals" does for all the insecure egocentric wpuld-be tyrants with Napoleonic syndrome, like Obama and Clintons.

Several banks have already taken on weak assets and failing financial institutions at the requests of federal government - Countrywide, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia, and repaid the government loans with interest.

[CutePuppy]

Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay.

Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks.

[4rcane]

sounds like they’re moving chairs around on a titantic

[4rcane]

only crooks from Wall Street, think this is a good deal
- government goes into debt to bailout banks, then
- government will go into more debt by getting bailout from banks to support banks

[Nathan Zachary]

SOunds like they are bleeding all the banks dry as evenly as they can, so they all fail like domino’s one after another without skipping a beat.

Better get that needle and thread out and start stuffing those mattresses if you haven’t already...But convert the USD’s into Euro’s or something first, otherwise a mattress full of money will just cause laughter at the bakery.

[rabscuttle385]

*Ping!*

[Tempest]

Oh dear....

[rabscuttle385]

Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership.

Only $10 billion? The FDIC is gonna need more than that, especially if another IndyMac or Corus blows up unexpectedly.

[CutePuppy]

special assessment of $5 billion to $10 billion over the next six months

That's just the "special" or "emergency" assessment, on top of regular one, and annualized to approximately $20B.

[ninonitti]

Exactly it’s been a year now of tap dancing and still no move from anyone to deal with thebankrupt banking system. Audit the Fed!!!!

[ninonitti]

The FDIC is currenty kerput......they need to borrow or bring change to buy stamps

[GulchBound]

Sounds like sweet justice to me. The banks, as lenders, should set the terms. If they are going to be lending money to the government, they need to have hearings on government executive pay and jet travel. Obama should be called in front of the underwriting board and plead his case. Then he should promise to work for $1/year until his failed financial practices are corrected and his organization becomes viable again.

[momincombatboots]

seriously, the Euro? Any other currency recommendations?

[The Magical Mischief Tour]

[CutePuppy]

:-) Turnabout is a... fair play. Sweet justice, indeed, but unfortunately, it's only the FDIC that would be the official borrower... but hearings on government pay, perks and jet travel should be held twice a year, just like Fed's semi-annual Monetary Policy Reports to Congress.

The fund, which stands behind $4.8 trillion in insured deposits, could be wiped out by the failure of a single large bank, although the deposit insurance corporation could always seek a taxpayer bailout by borrowing from the Treasury to stay afloat.

Officials say that the FDIC will issue a proposed plan next week to begin to restore the financial health of the ailing fund. .....

Borrowing from the industry is allowed under an obscure provision of a 1991 law adopted during the savings and loan crisis. The lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry. The bonds would be listed as an asset on the books of the banks.

[1COUNTER-MORTER-68]

seriously, the Euro? Any other currency recommendations?
~~~
JMHO : Buy what you will need with your money now,,,

More bang for your bucks,,,

If/when the “wheels come off” just hunker down in your home,,,

Money : I would go with US dollars/Gold/Silver,,,

They don’t take Euros at the store...;0)

[FrogMom]

I wondered how he’d get to the healthy banks. This is it.

If they do this, they go down with the rest of them.

[DuncanWaring]

Sounds like a good idea to me.

Get Bawney Fwank in there too.

[Roccus]

Saw this garbage coming back in March when the first “special assessment” came to light. I pulled all my cash back then, but have been wavering lately. This just reinforces my conviction that I did the right thing.

[GOPJ]

thanks for the ping