Congress Is Warned of Threat to FDIC : Banking: The fund will run out of money soon, the CBO director says. A loan from the Treasury is needed.

From Associated Press

The government’s bank deposit insurance fund will run out of money “within a year or so” and require a loan of taxpayer money, congressional budget analysts warned today.

Congress should quickly lift the $5-billion limit on how much the Federal Deposit Insurance Corp. can borrow from the Treasury, Robert D. Reischauer, director of the Congressional Budget Office, told the Senate Banking Committee.

Without a loan from the Treasury, the FDIC’s fund will not have enough money to handle bank failures much beyond the end of the 1991 fiscal year on Sept. 30, he said in a statement prepared for delivery today to the panel.

“Within a year or so, the fund will be out of cash and insolvent without some . . . infusion,” he said. “At minimum, some temporary financing seems to be needed immediately.”


The CBO is projecting that the balance in the fund, which protects $2.2 trillion in bank deposits, “would almost disappear” by the end of fiscal year 1991 on Sept. 30.

The forecast follows another pessimistic projection prepared for the Bush Administration’s budget, due out Monday, by the Office of Management and Budget.

The OMB, according to industry sources who spoke on condition of anonymity, believes that the FDIC fund will be $4 billion in the red by Sept. 30, 1992, and have a deficit of $22.5 billion by Sept. 30, 1995.

The CBO, however, assumes that the premium banks pay to the fund will increase from the current 19.5 cents per $100 of deposits to 30 cents within two years.


The congressional agency also assumes that the fund will get an $11-billion loan from the Treasury, which it estimates it should be able to repay within five years by collecting premiums from banks.

Reischauer warned, however, that the condition of the fund could turn out to be far worse than anticipated. In the event of a severe recession, it would have to borrow $38 billion from the Treasury, he said.

“Any projection of (fund) losses is subject to vast uncertainties,” he said.