Reversal of Fortunes: Banks Bailing Out the Government? It Could Happen

FDIC Considering Borrowing Billions From Banks to Shore up its Dwindling Funds
By MATTHEW JAFFE
WASHINGTON, Sept. 22, 2009
What if the country's bank bailout was flipped around? If, instead of the government bailing out banks, it was the banks that bailed out the government?
It could happen.

The Federal Deposit Insurance Corporation is considering borrowing billions of dollars from banks to shore up its dwindling deposit insurance fund.

"It's on the table," a source in the financial industry told ABC News today, confirming a story first reported this morning by the New York Times.

However, the source noted, the proposal is "not fully baked yet."
If the agency does decide to proceed with the proposal, the financial industry would support it, the source said, dubbing it "quite the turn of events."


The FDIC's fund insures depositors' accounts up to $250,000 when banks collapse, but it has now fallen to a 15-year low under the weight of a rash of bank failures during the financial crisis. Thus far this year, 94 banks have been taken over by federal regulators.

During the second quarter of this year, the insurance fund fell by $2.6 billion down to $10.4 billion. The FDIC's "Problem List" now includes 416 banks, with a combined $300 billion in assets.

Last week, FDIC chairman Sheila Bair said the agency would explore all options to help bolster the dwindling insurance fund. Another option would be tapping into the agency's $100 billion credit line with the Treasury Department.

"Never say never," Bair told an audience last Friday at Georgetown University about the possibility of using Treasury's credit line.