WASHINGTON (AP) -- The Federal Deposit Insurance Corp. is weighing several costly -- and never-before-used -- options as it struggles to shore up the dwindling fund that insures bank deposits.
The agency is considering borrowing billions from healthy banks. (!!!) (emphasis added, lol) Alternatively, it may impose a special fee on the banking industry.
Each option carries risk: Drawing money from healthy banks would take dollars out of the private sector, making that money unavailable for investment in the weak economy. But charging the whole industry a fee to replenish the fund could push weaker banks toward failure.
A third option -- borrowing from the Treasury -- is politically unpalatable, since it would resemble another taxpayer-financed bailout.
A fourth option would be to have banks pay their regular insurance premiums early. But this idea wouldn't solve the fund's long-term cash needs.
"The bottom line is, there's no good solution," said Jaret Seiberg, an analyst with the research firm Concept Capital. "This is a fight over which option is least bad."
The FDIC is expected to propose a solution, possibly combining two or more of the options, at a board meeting next week.
Bank failures since the financial crisis struck have drained the fund to its lowest level since 1992, at the peak of the savings-and-loan crisis. The fund insures deposit bank accounts of up to $250,000.
Officials have approached big, healthy banks about making loans to the agency, said two industry officials familiar with the conversations, who requested anonymity because the plans are still evolving. Doing so would help the agency avoid tapping a $100 billion credit line with the Treasury -- something FDIC Chairman Sheila Bair is reluctant to do.
But taking billions from large, healthy banks would remove that money from the private sector and prevent it from being invested. That could slow an economic recovery, analysts said.
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