ABC News’ Charlie Herman & Matt Jaffe report: The regulator charged with insuring your checking and savings accounts at your local bank wants Congress to more than triple the line of credit it has with the Treasury Department.
Testifying before Congress today, John Bovenzi, the chief operating officer for the Federal Deposit Insurance Corp., asked that the agency’s credit line be increased from $30 billion to $100 billion. The request comes a week before an expected announcement from Treasury Secretary Tim Geithner about the use of the second half of the TARP funds that could involve an enlarged role for the FDIC in managing the toxic assets held by struggling banks.
"The FDIC recommends that Congress provide additional support for our deposit insurance guarantee by increasing our existing $30 billion statutory line of credit to $100 billion," Bovenzi said at this afternoon’s hearing. "Assets in the banking industry have tripled since 1991, the last time our borrowing authority was adjusted. We believe it would be appropriate to adjust the line of credit proportionally to ensure that the public has no confusion or doubt about the government’s continued commitment to protect their insured deposits."
Asked committee chairman Barney Frank minutes later, "Is there any imminent crisis?"
"No," Bovenzi replied. "We do not expect to use the money, but at the same time we believe it’s just prudent contingency planning. Nobody knows the future in its entirety and it’s been many years since that borrowing authority has been increased."
Bovenzi also stated that bank failures will cost them more than the previous estimate of $40 billion in losses through 2013, forecasting that "our losses over an extended period will be higher."
The FDIC insurance fund, as of September 30, 2008, had $34.6 billion. This money covers insured deposits, currently up to $250,000. If the insurance fund were to be depleted, the FDIC can use the line of credit it has with the Treasury. And if that were to be used up completely, the FDIC has the backing of the federal government.
So far this year, six banks have failed and 25 banks failed in 2008.