Washington plans for big bank failure

Colin Barr
Fortune
March 10, 2009

The government is bracing for a big bank failure.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans’ bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

[efoods]The bill — the Depositor Protection Act of 2009, backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho — wouldn’t change the status of individual bank accounts, which through the end of this year are insured up to $250,000.

But the Dodd-Crapo bill acknowledges what the financial markets have been signaling for the past month — that the government must take the lead in a costly cleanup of the mess in the financial sector.

“I think it’s a commendable start,” said Simon Johnson, a former International Monetary Fund chief economist who tracks the crisis on his BaselineScenario.com blog.

Dodd said he introduced the legislation at the behest of other regulators, notably Federal Deposit Insurance Corp. chief Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner. All three recently wrote Dodd to support an emergency expansion of the FDIC’s capacity to borrow from the Treasury.

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