Saturday, March 7, 2009

FDIC Bill Dodges a New TARP Fight

From the WSJ:

The legislation, introduced late Thursday by Senate Banking Committee Chairman Christopher Dodd, would temporarily allow the FDIC to borrow $500 billion to replenish the fund it uses to guarantee bank deposits, if the Federal Reserve and Treasury Department concur. Those funds would be distinct from the contentious $700 billion financial-sector bailout, which lawmakers are loathe to expand.

The FDIC can presently only borrow $30 billion from Treasury. The bill would permanently raise that level to $100 billion, which the FDIC could tap without prior approval from the Fed and Treasury.

"I do not want [the FDIC] being timid," said Sen. Bob Corker, a Tennessee Republican who is one of the co-sponsors. "I want them to be aggressive, if they feel like a bank needs to be seized, to have the ability to do it."

One difference between the FDIC's insurance fund and the TARP is that any money the FDIC borrows from the Treasury would likely have to be repaid through assessments levied on banks rather than on taxpayers. The FDIC finances its fund through bank fees. Many struggling banks argue that the government should ease up on fees until the credit crisis abates.