- WASHINGTON -- 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.
- "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, but just for short-term liquidity
purposes," Ms. Bair said in an interview. Ms. Bair said such a scenario
was unlikely in the "near term."
- She said she did not expect the FDIC to take the more
dramatic step of tapping a separate $30 billion credit line with Treasury,
which has never been used.
- 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 biggest dent came from the July 11 failure of IndyMac
Bank, which the agency now says is expected to cost $8.9 billion. Previously
it had said losses would be between $4 billion to $8 billion.
- In another move to bolster the insurance fund, Ms. Bair
said the agency will propose in October charging higher premiums to thousands
of U.S. banks. These contributions are one of the fund's major sources
of income. The FDIC has been wrestling with how much to raise the fees
because the extra expense would put stress on already struggling financial
- Ms. Bair said the agency could charge higher premiums
to banks that rely on high-risk deposits to fuel growth or have an "excessive
reliance" on secured funding, such as advances from one of the 12
federal home-loan banks. Banks with less risky profiles would still likely
have to pay more, but she said their fees shouldn't increase as much as
- "We should reward behavior that reduces our costs,"
Ms. Bair said.
- 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.
- This time around, the FDIC would use the funds to bridge
the gap between paying depositors and selling a bank's assets, which can
take several years in the worst cases.
- In the FDIC's quarterly review, issued Tuesday, the agency
unveiled a litany of data that shows banks reeling under the pressure of
bad loans. It said the U.S. banking industry reported net income of $5
billion in the second quarter, the second-lowest level since the end of
1991. Also, the amount of loans and leases banks wrote off entirely jumped
in the quarter to $26.4 billion, the highest level since 1991.
- The percentage of "noncurrent" loans and leases
-- such as those more than 90 days past due -- hit 2.04% at the end of
the second quarter, the highest level since 1993.
- Firms set aside $50.2 billion to cover such loans, more
than four times the amount of a year ago. Still, the FDIC said the reserves
weren't keeping pace with higher delinquencies.