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FDIC seeking cash for new bailout plan?

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Bob Moon: If you’re like me, you probably didn’t think much about the Federal Deposit Insurance Corporation until recently. It was a sticker on the door of your bank, or an afterthought at the end of a commercial: “Member, F-D-I-C.” Now, it’s pretty well-known that those four letters guarantee up to a quarter-million dollars of our own deposits, if our bank hits the skids.

Today, it turns out the FDIC needs some backing of its own. It’s asking Congress for a half-trillion-dollar credit line with the U.S. Treasury — for obvious reasons. But as Marketplace’s Steve Henn reports, the request could also signal a change in strategy in the banking bailout.

Steve Henn: Only yesterday the House of Representatives gave FDIC permission to borrow up to $100 billion from the U.S. Treasury.

Bert Ely: That supposedly was going to be all that the FDIC needed.

Bert Ely’s a banking consultant.

Ely: So I’m not sure at all why they feel they suddenly need $500 billion.

But Simon Johnson, a former IMF official, says he can imagine what the agency might want to do with this money.

Simon Johnson: Yes, I can imagine. Of course. I think they are getting prepared, finally.

Johnson says this would give the FDIC enough cash to take over some of the biggest banks in America.

Johnson: So, yes, I think they are preparing for action vis-a-vis major banks.

The FDIC insures deposits in banks that fail. But a handful of banks in this country are so large the fund doesn’t have enough money for the FDIC to credibly threaten action. Bill Black, a former bank regulator, says the FDIC is supposed to be run like an insurance company but–

Bill Black: As an insurance company the FDIC has been run extremely poorly.

For 10 years, from 1996 to 2006, healthy banks didn’t have to pay a dime for FDIC insurance. Black says that left it short on cash when this crisis hit.

Recently, the FDIC has hiked premiums dramatically. And agency officials say they have enough money right now to cover any expected bank failures. But, they say, this temporary half-a-trillion-dollar credit line is necessary, just in case.

In Washington, I’m Steve Henn for Marketplace.

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