Report: FDIC Could Get $500B Loan from U.S. Treasury

The Federal Deposit Insurance Corp. may borrow as much as $500 billion from the Treasury Department under a plan being devised by Senate Banking Committee Chairman Christopher Dodd, according to The Wall Street Journal.

The move would give the FDIC access to more money to rebuild its fund that insures consumers' deposits, which have been hard hit by a string of bank failures, the Journal reported Thursday night. Dodd’s effort is coming in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner.

The FDIC recently proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. Dodd’s plan, included in a forthcoming bill, would represent an alternative source of funding if it becomes law.

Such a law could also give the FDIC more firepower to help address "systemic risks" in the economy, potentially creating another source of bailout funds in addition to the $700 billion already appropriated by Congress.

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.

The FDIC's deposit-insurance fund has fallen precipitously with 25 bank failures in 2008 and 16 so far in 2009, the Journal pointed out. “Some bank failures have a bigger impact on the fund than others, as IndyMac's failure cost the fund more than $10 billion, while many others cost the fund less than $100 million.”