Sept. 18 (Bloomberg) -- The Federal Deposit Insurance Corp. is considering tapping a Treasury Department line of credit as the agency examines ways to replenish a reserve fund depleted by 92 bank failures this year, Chairman Sheila Bair said.

The FDIC’s board will seek public comment on options that may include charging banks a fee, issuing debt or tapping the Treasury, Bair said today at a conference at Georgetown University in Washington. Lawmakers this week urged Bair to use the borrowing authority that was expanded in May.

“We are currently considering all options, including borrowing from the Treasury,” Bair said.

The FDIC insurance fund, used to pay depositors of failed banks, fell to $10.4 billion as of June 30, the lowest since the savings-and-loan crisis in 1993, the agency reported last month. Community banks are lobbying the FDIC and Congress to keep the agency from charging the industry an additional fee to bolster the fund, saying lenders are struggling to raise capital and have already paid an emergency fee this year.

The agency has the authority to tap a Treasury line of credit that Congress in May increased to $100 billion, with a temporary ceiling of $500 billion through 2010.

‘Hot Coals’

“In my opinion, Chairman Bair would rather walk over hot coals than draw on the line of credit from Treasury,” Camden Fine, president of the Independent Community Bankers of America, said today in a telephone interview. Fine’s group has opposed an assessment to boost the fund, saying it would unfairly burden small banks.

U.S. Representative Barney Frank, the Massachusetts Democrat who leads the House Financial Services Committee, and Senator Carl Levin, a Michigan Democrat, said this week the FDIC should borrow from the Treasury instead of levying a fee.

“There is a philosophical question about the Treasury credit line, whether that is there for losses we know we will have or whether it’s there for unexpected emergencies,” Bair said today, noting that there is conflict in Washington over whether taxpayers or the industry should bear the burden.

Borrowing from the industry would be the most attractive option, Fine said.

“You’re not using taxpayer money,” he said. “You move away from the stigma of borrowing from the taxpayer and all of the baggage that comes with it.”

The agency classified 416 banks as “problem” institutions in the second quarter, a status that suggests they are at greater risk of failing. Historically, 13 percent of banks on the list fail, Bair has said.

Bair today restated her support for having a council of regulators monitor large firms for systemic risk instead of giving the authority to the Federal Reserve as proposed by President Barack Obama.

‘Big Picture’

“An oversight council would see the big picture, with a wide range of views making it more likely we’d flag the next problem before it causes significant damage,” Bair said.

She also called for a mechanism for unwinding failing systemically important non-bank firms similar to the process used by the FDIC for dissolving banks. Bair also is seeking powers to seize the holding companies of U.S. lenders.

Regulators have to be “more vigilant and vigorous,” Bair said. “There’s a difference between free markets and free-for- all markets. The government needs to set and enforce the basic rules.”

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: September 18, 2009 11:47 EDT