FDIC chief may tap Treasury for funds

The chairman of the Federal Deposit Insurance Corp. says she is “considering all options, including borrowing from Treasury” to replenish the dwindling fund that insures bank deposits.

“I never say never,” FDIC Chairman Sheila C. Bair told an audience at Georgetown University on Friday.

Ms. Bair’s remarks go beyond what she said just three weeks ago when asked about tapping the Treasury after the fund that insures regular deposit accounts up to $250,000 hit its lowest point since 1992, the height of the savings-and-loan crisis. “Not at this point in time,” she said Aug. 27.

The FDIC estimates bank failures will cost the fund around $70 billion through 2013. Ninety-four banks have failed so far this year, and hundreds more are expected to fall in coming years largely because of souring loans for commercial real estate.

Regulators on Friday shut down two banking units of Irwin Financial Corp., appointing the FDIC receiver of Louisville, Ky.-based Irwin Union Bank FSB and Columbus, Ind.-based Irwin Union Bank and Trust Co. Both banks’ deposits will be assumed by First Financial Bank in Hamilton, Ohio.

Irwin Bank FSB had $493 million in assets and $441 million in deposits, while Irwin Union Bank and Trust had $2.7 billion in assets and $2.1 billion in deposits.

The FDIC’s fund has slipped to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent. The $10.4 billion in the fund at the end of June is down from $13 billion at the end of March, and $45.2 billion in the second quarter of 2008.

The FDIC board will meet at the end of the month and will likely put out several options, Ms. Bair said Friday, including tapping a Treasury credit line, assessing fees on banks in advance and again increasing the fees that banks must pay.

“We don’t want to stress the industry too much at this time, when they’re still in the process of recovery,” she said.

Congress in May more than tripled the amount the FDIC could borrow from the Treasury if needed to restore the insurance fund, to $100 billion from $30 billion.

The FDIC then adopted a new system of special fees paid by U.S. financial institutions that shifted more of the burden to bigger banks to help replenish the insurance fund. The move cut by about two-thirds the amount of special fees to be levied on banks and thrifts compared with an earlier plan, which had prompted a wave of protests by small and community banks.

Ms. Bair had earlier promised a reduction in fees charged to banks if the Treasury credit line could be expanded.