The expected wave of bank failures may force the Federal Deposit Insurance Corp. to borrow money from the Treasury Department, FDIC Chairman Sheila Bair said yesterday.
Bair said the borrowing could be needed to cover negative short-term cash-flow caused by paying depositors immediately after the failure of banks. The FDIC, clearly, doesn't have the cash on hand to handle the expected onslaught. 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 toward the end of the savings-and-loan crisis in the early 1990s when thousands of banks failed.