Senate Moves to Bolster FDIC with $500B

Bill seeks extra funds to cover bank deposits in the event more banks fail

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    NEWSLETTERS

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    The Senate is moving to increase the FDIC's credit line to $500 billion in light of recent bank failures.

    The Senate is moving to make sure that the FDIC doesn't run out of money under the weight of rampant bank failures.

    A new bill, authored by Senate Banking Committee Chairman Christopher Dodd (D-Conn), would allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.  It comes in response to urging of FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner, the Wall Street Journal reported.

    The FDIC considered raising bank fees last week in order to rebuild its deposit insurance fund, which had declined to just $19 billion at the end of last year. The bill would providing an alternative source of funding. 

    Bair has already agreed to halve the emergency fee in exchange for increased borrowing authority, the AP reported. The new emergency premium would collect 10 cents for every $100 of federally-funded institutions' insured deposits.

    The FDIC has a current credit line of $30 billion, leaving a "thin margin of error" to cover losses from bank failures, Bair wrote in a letter to Dodd yesterday.

    Bernanke expressed similar concerns in a letter last month, stating that expanding the agency's ability to borrow "would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system."

    The bill would let the FDIC to borrow up to $500 billion until the end of 2010 if the FDIC, Fed, Treasury secretary and White House agree that the money is warranted, the article stated. Without that approval, the FDIC would be allowed to borrow $100 billion.

    The agency was hit hard by 25 bank failures in 2008 and 16 so far this year. The failure of IndyMac alone cost the deposit-insurance fund more than $10 billion.

    A 1991 law puts the maximum amount of money that the FDIC can borrow at $30 billion, but the FDIC hasn't borrowed Treasury money in over a decade, the Journal reported.