US FDIC may need to borrow funds from US Treasury

The Wall Street Journal is reporting this morning that the US Federal Deposit Insurance Corporation (FDIC) may have to draw on its lines of credit with the US Treasury to support its short-term working capital requirements. The fund that was capitalized at 45.2B USD earlier this year has effectively been drained by insurance payouts to customers whose savings were lost in nine separate regional bank failures this year. The FDIC will investigate other funding alternatives to recapitalize the fund however, such as raising the premium rates that it charges its member banks as well as forcing institutions with aggressive lending practices to pay more than their conservative counterparts.

The FDIC has not drawn down on its lines of credit with the US Treasury since the tail end of the Savings and Loans crisis in the 1990's that led to the failure of thousands of deposit taking institutions. The fact that a similar drain of the FDIC's resources has occurred after only nine regional banks have gone under has led some in Washington to question the strength of the entire US banking structure. No matter how you slice it, it's not good news for financial stocks.