Bair to Geithy: Psst, About That Bailout...
6 months. It only took them 6 months to burn through "the fund." This should not come as a surprise to anyone who has been paying even the smallest amount of attention since we first discovered the FDIC's moral hazard treasure chest was running dry.
Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.
"We are carefully considering all options" including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.
Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said.
Ms. Bair appeared cautious about resorting to the Treasury credit line, saying there are different views on when it should be used. She said some believe it should be reserved for emergencies only, rather than for covering losses that are already known.
Congress acted earlier this year to allow the FDIC to borrow as much as $500 billion from the Treasury if the Treasury, the Federal Reserve and the White House believe it is warranted. Otherwise, the agency can borrow up to $100 billion.
The financial crisis has clobbered the FDIC's deposit insurance fund, forcing the agency to impose a special assessment on the industry to rebuild the fund. Ninety-two banks have failed so far this year. The deposit insurance fund fell by $2.6 billion to $10.4 billion during the second quarter, after 24 banks went bust.
In a speech at Georgetown University's McDonough School of Business, Ms. Bair strongly cautioned the Financial Accounting Standards Board, or FASB, against expanding market-to-market accounting rules to bank deposits and loans.
Currently, banks are required to write down certain securities to market values when they become impaired. FASB is proposing to extend that to other bank assets, such as loans and deposits.
Ms. Bair said the move would create more volatility for bank balance sheets, exacerbating the financial crisis, with no measurable improvement in transparency.
"Marking banking assets to market prices doesn't make sense," she said.
Ok, let's use an entirely made up scenario.
You are at work and faced with a tough decision, one that will likely affect your entire organization but specifically you. You will look foolish if you make what appears to be the right choice. Your company will lose thousands, millions even, and you will have exposed them as broken, useless, and possibly even dangerous.
But if you could encourage a similar company with some pull to adopt standards you say are necessary and continue to masquerade as a healthy company yourself - and therefore save your ass - wouldn't you do it?
Sheila? Perhaps you have the answer to that?