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FDIC to Consider Borrowing $10 Billion

From Reuters

The insurance fund that backs the nation’s troubled banking industry may seek a $10-billion loan to avoid a looming cash crunch, its chairman said Monday.

Federal Deposit Insurance Corp. Chairman L. William Seidman, speaking to journalists at a banking industry conference, said the loan should be enough to see the fund through 1991.

“But we ought to be looking at further plans for beyond that,” Seidman said.

He said the loan could be repaid by boosting the premiums that banks pay for deposit insurance to 23 cents per $100 worth of domestic deposits, a 3 1/2-cent increase.

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The FDIC board, which will meet Thursday to consider the loan and the premium increase, has not decided where to try to obtain the loan.

Seidman said potential lenders include the banking industry, the Treasury, the Federal Reserve Board or the Federal Financing Bank, which lends money to government agencies when they have an immediate need for funds.

But Fed Gov. John LaWare, addressing the same conference, warned that $10 billion may not be enough to beef up the fund.

The bank fund, which protects deposits when banks become insolvent, has been shrinking rapidly because of a wave of bank failures. Its resources are the lowest in its history.

Seidman has predicted that the fund could run dry up this year if the recession lasts longer than expected. At the end of 1990 it had about $8 billion in it, down from about $18 billion in 1987.

Seidman said the FDIC has the authority to borrow up to nine times its net worth, considerably more than $10 billion.

But he said the agency didn’t want to borrow too much in case its net worth falls in the future.


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