Due to the record number of bank failures this year, the FDIC is low on funds. Instead of borrowing from the Treasury as they did in the early ’90s savings and loan crisis, regulators have a new idea: asking banks for a bailout.

Banks find this option much more palatable than having to pay another emergency assessment, according to The New York Times, and having the financially healthy banks loan money to the FDIC would protect weaker banks in danger of failure. Ninety-four banks have failed so far this year.

“[FDIC head] Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay.

Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks.

Forget populist furor. This may just result in populist cackling with glee.

F.D.I.C. May Borrow Funds From Banks [NY Times]

(Photo: Ack Ook)

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