FDIC seeks billions to shore up deposits

WASHINGTON (AP) — Regulators have approached big banks about borrowing billions to shore up the dwindling fund that insures regular deposit accounts.

The loans would go to the fund maintained by the Federal Deposit Insurance Corp. that insure depositors when banks fail, said two industry officials familiar with the conversations, who requested anonymity because the plans are still evolving.

Regulators also are considering levying a special emergency fee on all banks, charging regular fees early or tapping a $100 billion credit line with the U.S. Treasury, the people said.

FDIC spokesman Andrew Gray said that while borrowing from the banks “is an option, it’s not being given serious consideration.” The board meeting where the plans will be discussed is scheduled for next week.

But a government official familiar with the FDIC board’s thinking said earlier Tuesday that the plan was being considered. He requested anonymity because he was not authorized to discuss the matter.

The fund, which insures deposit accounts up to $250,000, is at its lowest point since 1992, at the height of the savings-and-loan crisis. Ongoing losses on commercial real estate and other loans continue to cause multiple bank failures each week.

FDIC Chairman Sheila Bair wants to avoid tapping the Treasury credit line, and Treasury officials insist that the strongest big banks have enough extra capital to operate, the officials said. Comptroller of the Currency John Dugan, who is a voting member of the FDIC board, has said he doesn’t want to levy another fee on banks while the industry is still recovering.

Bair’s priorities for the banking industry are different from the Treasury’s, analysts said. They said she is focused on stabilizing the many banks still at risk of failure. Those failures could further deplete the insurance fund.

Treasury Secretary Tim Geithner has taken a more hands-off approach to the industry, and wants to wind down government assistance quickly.

Bair and Geithner have sparred on key decisions throughout the financial crisis, including the question of whether to bail out Citigroup Inc. with billions of taxpayer dollars last fall.

In an interview with The Associated Press last December, Bair said she and Geithner “have different perspectives frequently, and I think that’s a healthy thing.”

“You don’t want to get everybody in the room nodding,” she said.

Lending money to the insurance fund would give big, healthy banks a safe harbor for their money and would limit their risk-taking, said Daniel Alpert, managing director of the investment bank Westwood Capital LLC in New York.

It also would allow the industry’s strongest players — which still rely on FDIC loan guarantees and other emergency subsidies — to help weaker banks avoid paying another fee, he said.

Bankers and lobbyists strongly support the plan to have some big banks lend money to the fund, since it would help still-struggling institutions avoid another fee.

In a letter to Bair Monday, American Bankers Association CEO Ed Yingling endorsed borrowing from the industry or collecting regular premiums early as alternatives to charging another fee.

An earlier special fee already is having a negative economic impact, and another fee “may do more harm than good,” he said.

The FDIC may settle on a plan that combines two or more of the options being considered.