I was going to write an article about how the FDIC was a) running out of funds because of the cost of closing/merging failed banks, b) how the FDIC could borrow taxpayer funds from the Treasury and c) that director Sheila Bair has proposed the agency borrowing funds from the banks themselves to support the fund.
Barry Ritholtz has beaten me to it:
The FDIC is currently funded by a small fee charged to every bank FDIC insured account in the country. The enormous amount of bank collapses has nearly exhausted the FDIC coffers.
Call it an industry, rather than taxpayer-funded bailout.
Somehow, a NYT article this AM misses the issue. The article seems to focus on the irony of banks lending to the FDIC, but seems to forget that it is the fees on bank accounts that fund the insurance program in the first place.
But the ironic spin is besides the point — the FDIC is out of money not because it was mismanaged or made horrifically risky investments or engaged in otherwise irresponsible behavior. It is running out of cash because some of the banks it insures engaged in that behavior.
I agree with Ritholtz completely, it is appropriate that the banks pay to support themselves rather than looking to the Treasury for a bailout … or by having the FDIC launder bailouts for them.
One issue to keep in mind is the intense rivalry between Bair and Treasury honcho Geithner. Many persons in the know, including myself had fingered the competent Bair as Obama’s Treasury Secretary. The choice of Wall Street sock puppet Geithner was one of the first indications of the tether binding the incoming Obamas and finance … and Goldman- Sachs, in particular.
Bair and Geithner have been sniping at each other ever since. Policy in Washington orbits around personal rivalries and the course of business bailouts under the Geithner regime is one outcome. Bailouts are form of administrative empire building, after all …