Senator Christopher Dodd (D-Conn) has introduced a bill that would allow the FDIC to borrow up to $500 billion dollars to cover anticipated losses to depositors as bank failures continue to grow.
Six months ago the FDIC criticized Bloomberg reporter David Evans for suggesting that the agency might need a $150 billion dollar bailout as bank failures mount.
According to the Wall Street Journal, however, FDIC Chairman Sheila Blair, U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are pressing for additional funds as more banks are set to fail.
From the Journal:
By DAMIAN PALETTA
WASHINGTON -- Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.
(snip)
The FDIC would be able to borrow as much as $500 billion until the end of 2010 if the FDIC, Fed, Treasury secretary and White House agree such money is warranted. The bill would allow it to borrow $100 billion absent that approval. Currently, its line of credit with the Treasury is $30 billion.
Meanwhile, smaller banks have objected to Blair's proposal to increase the insurance premiums charged to the insured banks by the FDIC.
From Bloomberg News:
By Linda Shen
March 6 (Bloomberg) -- TCF Financial Corp., the second- largest bank based in Minnesota, never made a subprime loan and hasn’t lost money since 1995, so its top executive is asking why the company should help clean up a mess left by larger rivals.
"I’m kind of bitter," said William Cooper, chief executive officer of the 448-branch bank, adding that over the years TCF has invested about $1 billion in the Federal Deposit Insurance Corp.’s fund that guarantees bank deposits. "We pay for the excesses of our competitor over and over again."
UPDATE ONE: I really didn't want to offer an opinion on this latest move but given how so many commenters consider the term "bailout" a pejorative, I want to make clear my view. I don't consider all bailouts to be bad. Yet I'm also growing increasingly concerned by the breadth and depth of the bailouts.
In this particular instance I'm actually somewhat optimistic that it will achieve some positive outcomes. First, and most important, it will ensure that depositors' money is safe. Second, over the long term, I expect that the banks themselves will end up shouldering the cost.
Moreover, I suspect that this is the first solid move toward nationalization of some of the largest banks. While many have been calling for such a move, the truth is that the FDIC did not, and does not currently have the resources to pay off the depositors in the case of a major bank failure. This will position the agency to handle many small and medium bank failures as well as a couple of major ones.