- The Washington Times - Saturday, September 26, 2009

Treasury officials and regulators are weighing a fresh round of bailouts for banks that were deemed too risky to qualify for earlier aid.

Representatives from the Treasury Department, Federal Deposit Insurance Corp. and House Financial Services Committee discussed the plan by phone Thursday, said California Bankers Association Chairman Dan Doyle, who was on the call.

Small community banks are struggling as commercial real estate and other loans go sour. Officials and industry representatives are considering how to get money to those banks, Mr. Doyle said Friday.

The new program could force Treasury to postpone closing its $700 billion bailout fund, which is scheduled to expire this year. That decision has become a political hot potato amid public backlash against bailouts and a rising deficit.

Other banking industry leaders confirmed that the conversations are taking place. They did not know when Treasury might announce the plan.

Treasury spokesman Andrew Williams would not comment on the proposed program. Treasury is “continually monitoring economic conditions and exploring options to ensure that a sustainable recovery is taking hold on Main Street,” he said. An FDIC spokesman did not respond to requests for comment.

The money could go to banks whose ratings by regulators made them too weak to qualify for earlier rounds of funding. It may be limited to banks with less than $5 billion on their books. The banks could be required to raise matching money in the private markets, Mr. Doyle and others said.

“The rules were pretty restrictive,” Mr. Doyle said. “They want to give another opportunity for some of the community banks.”

As with earlier capital injections, banks eventually will have to repay Treasury with interest.

The move could prevent some small bank failures, which would ease pressure on the FDIC’s dwindling fund that insures bank deposits.

Regulators on Friday shut down Atlanta-based Georgian Bank, the 95th U.S. bank to fail this year as loan defaults rise in the worst financial climate in decades.

The FDIC took over Georgian Bank, with about $2 billion in assets and $2 billion in deposits as of July 24. First Citizens Bank and Trust Co., based in Columbia, S.C., agreed to assume the assets and deposits of the failed bank. Georgian Bank’s five branches will reopen Monday as offices of First Citizens Bank.

AP writer Jeannine Aversa contributed to this report.

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