One more big bank failure and the Federal Deposit Insurance Corporation (FDIC) could be in danger of going broke. This predicament has forced federal regulators to seriously consider borrowing money from the very institutions the FDIC has been rescuing: banks.

Under a plan being pushed by the financial industry, “healthy” banks would lend the FDIC billions of dollars so it could continue rescuing ailing banks and protect bank depositors. Banks would prefer to handle the problem this way instead of the FDIC levying a huge assessment on the industry in order to replenish federal coffers.

Another option would require the FDIC to tap into an existing $100 billion credit line at the Department of the Treasury. However, relations between FDIC chair Sheila Bair and Treasury Secretary Timothy Geithner are so frosty, analysts don’t give this solution a snowball’s chance.

“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” Camden R. Fine, president of the Independent Community Bankers, told The New York Times. “She’d do just about anything before going there.”

So far this year the FDIC has seized 94 banks, which has caused a significant drain on the deposit insurance fund, going from $30 billion to $10 billion.
                                                                                                                                                     -Noel Brinkerhoff

F.D.I.C. May Borrow Funds From Banks (by Stephen Labaton, New York Times)