February 2, 2009 / 10:52 PM / 9 years ago

FDIC seeks to triple Treasury Dept borrowing power

WASHINGTON (Reuters) - The Federal Deposit Insurance Corp is seeking to more than triple its credit line with the U.S. Treasury Department to $100 billion, a move to give it more financial power to handle U.S. bank failures, the agency said on Monday.

The FDIC and Congress are working to boost the agency’s current $30 billion borrowing power in legislation being crafted by U.S. Rep. Barney Frank, chairman of the House Financial Services Committee.

The move comes as the FDIC’s deposit insurance fund has shrunk due to a significant uptick in bank failures over the past year. The insurance fund’s value dropped 24 percent in the 2008 third quarter to $34.6 billion.

“We would maintain that it’s prudent planning to have contingency plans in place,” said FDIC spokesman Andrew Gray.

The House bill being prepared by Frank would also make permanent Congress’s October decision to temporarily increase deposit insurance to $250,000 per customer account. The increase was hurriedly adopted as a temporary way to increase confidence in the struggling U.S. banking system.

Frank said the FDIC’s desire to increase its borrowing power is a safeguard to ensure the agency can quickly pay out insured deposits when a bank fails and the FDIC is named as a receiver.

“They have no immediate need for it, but they just want to make sure they’re not constrained in the decision by a lack of the insurance fund,” Frank told reporters after meeting Treasury Secretary Timothy Geithner on Monday. “They don’t want to say, ‘We have to keep this bank open longer than it should because we don’t have enough money.'”

If the FDIC borrows funds through the Treasury Department, it would pay back the money through a special assessment on the banking industry.

Frank’s legislation is expected to be approved this week by the House Financial Services Committee. It would then go to the House floor with Democratic leaders setting a course for debate.

A total of 25 U.S. banks were seized by bank regulators in 2008, up from only three in 2007. So far this year, six banks have failed as the financial system grapples with mortgage securities and other distressed investments that weighed down balance sheets.

Reporting by Karey Wutkowski and Kevin Drawbaugh; editing by Richard Chang and Jeffrey Benkoe

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