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Bills, Bills, Bills for the FDIC

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US Treasury may loan up to $500 billion.

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The Federal Deposit Insurance Corporation (FDIC) collected no insurance premiums from most banks from 1996 to 2006.

The reason: Congress didn't authorize the FDIC to collect the fees, and didn't reauthorize them until the current crisis loomed, the Boston Globe reports.

Last year, 25 banks failed and 17 have gone under so far this year, draining the FDIC's fund. The FDIC has proposed higher premiums that would raise as much as $27 billion this year. But the proposal comes at a time when smaller banks can least afford to pay.

The Independent Community Bankers of America says the new assessments could swallow 50% to 100% of small bank's 2009 earnings.

A bill supported by Democratic Senator Christopher Dodd, of Connecticut, would authorize the FDIC to borrow up to $500 billion from the US Treasury, and would be an alternative to higher FDIC fees charged to member banks.

On December 31, the FDIC had $18.9 billion in its insurance fund to cover bank failures, down from $52.4 billion a year earlier. The FDIC had also set aside $22 billion for possible bank failures.

This idiocy is bound to be portrayed as yet another reason why rapacious capitalists have to be tied down with increased regulation. But it's largely a failure of government - not the banking industry.

The FDIC fund ran short during the savings-and-loan crunch in the 1980s, forcing the agency to increase fees to cover the shortfall. You'd think that the FDIC would build a hefty cushion during the good times to prepare for the next downturn - and that Congress would have the common sense to authorize it to do so.

Nope.

If the banking industry seriously wants to argue that Congress needs adult supervision when making basic decisions about the economy, it might start by recognizing that it should have continued to pay into the insurance fund during the flush times - especially when the fees would represent a small percentage of growing profits.

It would also be helpful if Congress could say, "We goofed."

Fat chance. Instead, look for the usual round of finger-pointing. That will have to do for governance and responsible banking until the next crisis.
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