FDIC MAY BORROW MONEY FROM TREASURY
August 27th, 2008Via: Reuters:
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 $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.
The agency also plans to charge banks that engage in risky lending practices significantly higher premiums than other U.S. banks, Bair said.
The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.
The fact that the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.
Nothing is going to stand in the way of this madness of bailing out everybody who has been irresponsible, is it? Oh well, that goes a long way towards explaining why the most recent annual rate of inflation is 6% and has accellerated in recent months to something like 12%. (Think of it this way, folks: 12% inflation is basically prices going up by one-eighth every year.) IOW, we have to create so much fiat funnee-munnee to do all this bailing out that runaway currency devaluation is inevitable. Don’t be fooled by the sucker’s rally of the US$! It’s just more speculator-driven financial black magick!