Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. Ms. Bair said the borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank. The borrowed money would be repaid once the assets of that failed bank are sold. 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.
The FDIC said Tuesday its “problem” list of banks at risk of failure had grown to 117 at the end of June, compared with 90 at the end of March.
The FDIC’s deposit insurance fund reimburses depositors who lost money in a bank failure, typically up to $100,000. 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.
The FDIC was created during the Great Depression, and in 1990 it received the authority to borrow short-term funds from Treasury. It tapped that facility in 1991 and by June 1992 had accumulated loans of $15.1 billion. The money was repaid by August of the following year. This is just one of the sources of funding available to the FDIC, ensuring it can always pay depositors.
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