In the earlier post we discussed the health of the institutions insured by the FDIC, now let's discuss the health of the FDIC itself:

 

(From the WSJ): "WASHINGTON -- Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures.

 

Ms. Bair said the borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank. The borrowed money would be repaid once the assets of that failed bank are sold.

 

The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis.

 

"I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes," Ms. Bair said in an interview. Ms. Bair said such a scenario was unlikely in the "near term."

 

She said she did not expect the FDIC to take the more dramatic step of tapping a separate $30 billion credit line with Treasury, which has never been used.

 

In another move to bolster the insurance fund, Ms. Bair said the agency will propose in October charging higher premiums to thousands of U.S. banks. These contributions are one of the fund's major sources of income. The FDIC has been wrestling with how much to raise the fees because the extra expense would put stress on already struggling financial institutions.

 

Ms. Bair said the agency could charge higher premiums to banks that rely on high-risk deposits to fuel growth or have an "excessive reliance" on secured funding, such as advances from one of the 12 federal home-loan banks. Banks with less risky profiles would still likely have to pay more, but she said their fees shouldn't increase as much as high-risk banks.

 

"We should reward behavior that reduces our costs," Ms.