It's not just an irony, but a disturbing development.
(AP) — Regulators may borrow billions from big banks to shore up the dwindling fund that insures regular deposit accounts.
The loans would go to the fund maintained by the Federal Deposit Insurance Corp. that insure depositors when banks fail, said industry and government officials familiar with the FDIC board's thinking, who requested anonymity because the plans are still evolving.
The fund, which insures deposit accounts up to $250,000, is at its lowest point since 1992, at the height of the savings-and-loan crisis. Ongoing losses on commercial real estate and other loans continue to cause multiple bank failures each week.
FDIC Chairman Sheila Bair wants to avoid tapping the Treasury credit line, and Treasury officials insist that the strongest big banks have enough extra capital to operate, the people said. Comptroller of the Currency John Dugan, who is a voting member of the FDIC board, has said he doesn't want to levy another fee on banks while the industry is still recovering.
Bankers and lobbyists strongly support the plan to have some big banks lend money to the fund, because it would help still-struggling institutions avoid another fee. For the banks that make the loans, it would be the safest possible investment with a guaranteed return.
The FDIC's fund has slipped to 0.22% of insured deposits, below a congressionally mandated minimum of 1.15%. The $10.4 billion in the fund at the end of June is down from $13 billion at the end of March, and $45.2 billion in the second quarter of 2008.
There are three items missing from this article:
1) how this would be a windfall for the banks. Instead of paying fees for deposit insurance, they would be collecting interest from the taxpayer. And where would this money have come from in the first place? Most likely from a taxpayer bailout, which would now be lent back to us at interest.
2) the irony of the agency set up to bailout banks, seeking a bailout from the banks, and
3) the extreme conflict of interest this would involve. How can you expect an agency to regulate a bank that the agency owes money to?
This is a horrible idea.