The Treasury Dept. has adopted a plan proposed by the Federal Deposit Insurance Corp. to replenish the dwindling bank-insurance fund. In a broad legislative package on bank reform released on Mar. 20, Treasury proposed allowing the FDIC, which runs the bank fund, to borrow up to $25 billion from the Federal Reserve system to bolster and dispose of troubled banks. Banks would pay back the Fed loans with premiums capped at 30~ per $100 of insured deposits paid to the bank-insurance fund.
Obtaining the additional money from the Fed has the political advantage of avoiding a direct levy on taxpayers. But any loan losses could ultimately wind up expanding the federal budget deficit.