FDIC May Be Prohibited To Borrow From US Treasury Due To Federal Debt Ceiling Limitations

Tyler Durden's picture

Even as the FDIC is scrambling to find ways to replenish the practically empty Deposit Insurance Fund, one of its options, namely borrowing from the Treasury, may be a non-starter due to the eggregious monetization by its counterparty, the Federal Reserve, as both run up against the Federal debt ceiling. According to Bloomberg:

Any new government borrowing brings the outstanding U.S.
government debt closer to the $12.1 trillion limit. Tapping the
FDIC’s line of credit or borrowing through the Federal
Financing Bank or from private banks also would have
implications for the debt limit, Treasury spokesman Andrew
Williams said in an interview.

As for the debt cap, Zero Hedge is preparing to submit its petition to halt neverending debt ceiling increases to receptive Senators. Alas, those who care about this country's future have some serious opposition:

The Obama administration has been pressing lawmakers to
lift the debt cap, which Treasury Secretary Timothy Geithner
warned last month may be reached later this year.

The Treasury already has begun taking steps to cut back
borrowing so it can stay under the limit while Congress
deliberates. Last week, the Treasury said it would cut back its
borrowing on behalf of the Federal Reserve as it seeks to keep
government debt below the limit.

As was previously discussed on Zero Hedge and elsewhere, the unwind of the SFP may have something to do with the debt ceiling, although it is just as likely a means for the Fed to slip a little extra liquidity into the market as it sees fit:

The Treasury will reduce the outstanding borrowing in its
Supplementary Financing Program to $15 billion “in the coming
weeks,” the department said in a statement from Washington.
According to government and private-sector estimates, this
gives the Treasury an extra six to eight weeks of breathing
room from Geithner’s previous estimate of a mid-October

Either way, keep an eye out on this. After all the FDIC's primary responsibility is to be the backstop of US deposits, not to be involved in some complex political machinations that will likely merely further serve Wall Street. Another whisper of a potential run on the banks, and with the FDIC's caught in its current sorry state, it could very easily be game over for the finance-political complex.

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NoBull1994's picture

I suggest that the FDIC create an off balance sheet entity to borrow the money, a la Citi or Barclays.  This entity can issue its own bonds!

Anonymous's picture

Funny, that's what Sheila said: let's borrow (US gov't guaranteed bonds) the money we need to rescue the banks...from the banks!! Presumably there's both 1)the money the banks got from the Treasury for bailouts and 2)the money the Fed printed now sitting in excess reserve accounts available to lend to the FDIC. Welcome to the US gummint daisy chain!

Gloomy's picture

What, what… QE negatively affecting retail holders of bond exchange-traded funds?

Vanguard said it will start using Barclays Capital float-adjusted benchmarks for its 12 existing and proposed bond index funds and ETFs. Float-adjusted benchmarks exclude securities that do not freely trade on public exchanges, such as those held by insiders or the government.

The family is making the switch because the investable market for taxable bonds has gotten smaller since the financial crisis. That’s because the Federal Reserve has gone on a massive buying binge of mortgage-backed and government agency-issued securities to help the staggering housing market by keeping rates low. This quantitative easing policy has put more than 11% of the total $13.4 trillion investment-grade taxable-bond market in the hands of the Fed, according to Vanguard.


Anonymous's picture

obama will spend past the debt ceiling...i do
not believe that the criminal enterprise occupying
the white house will observe statutory limits...

who would prosecute them? congress ia an
appendage blowing in the wind...

Anonymous's picture

Congress will just raise the debt ceiling. Problem solved. As easy as printing money.

Cognitive Dissonance's picture

Do you think this might finally be the way Congress grows a pair and stops this madness, at least for a little while?

Or could this be the "reason" they use to finally let some steam out of this market? It's not my fault, they did it.

Anonymous's picture

not in the least....the debt ceiling will be
raised or obama will ignore it...the debt
limit is like a coffee table book....seen but
never read....and a nice coaster for drinks...

SV's picture

Grow a pair now when things are going so well?  Nah.

I expect this is compounded by Ms. Bair not falling to the wishes of the almighty Treasury.  I think this is appropriate conduct.


Anonymous's picture

Of course Congress will raise the debt limit. They always do, though the opposition party (GOP this time, but Dems in the past) will use it to grandstand as they always do. Then all but a few will vote to raise the ceiling.

Remember too that Clinton and Rubin found all sorts of creative ways to work around the debt limit when the GOP briefly held their feet to the fire by delaying raising the ceiling for a couple of weeks back in the 90s. It was business as usual

NoBull1994's picture

Sucks that Pisani is on vacation today!!!!!

BM's picture
BM (not verified) Sep 23, 2009 3:17 PM

that's right, the FDIC should borrow directly from the banks. and when some bank have some financial trouble, the FDIC, as a matter of punishment, can suggest to forget about getting that loan back.

bugs_'s picture

The FDIC needs to do an IPO.

aldousd's picture

Guesses on who would underwrite it?

NHL's picture

If you do so, let's collect signatures

Anonymous's picture

We abandoned the rule of law when the Federal Reserve was created. The FDIC will borrow money if it needs to, regardless of statutory limits. That's just the way it is.

Anonymous's picture

please repeat after me:

now u know your a,b,cees...
everyone bend over & touch your knees!

economessed's picture

So now we know why the phrase "In god we trust" is on our money.....   Let's hope this god we are putting all our faith into won't smite us, and will bestow some kind of miracle upon our economy that bails-out all the god-fearing bankers who have conducted themselves in a godly-way all these years, demonstrating ethics, charity and good will towards their fellow man.

Hmmmm.  Upon reflection, we're totally screwed.  We're going to need to make a sacrifice to appease the gods.  I suggest a human sacrifice to start.  Somebody get me Hank, Allan, Ben, Tim, and Mary for starters.  And some bourbon.  The gods LOVE bourbon!



cocoablini's picture

Scare tactic-like TARP last year. Give us the money or we hose everyone and everything. Start talking like the FDIC won't be able to meet obligations and watch the Congress cave like a cheap tent

Anonymous's picture

Despite having a fund balance, the FDIC does not have any money -- it never does. The fund balance is just an accounting entry -- the Treasury has used those funds. So any FDIC cash needs have to come from Treasury floating some more bonds to pay off the IOUs in the FDIC fund. The FDIC fund is just like Social Security fund -- there is NO money there.

Amazingly the FDIC actually thought about borrowing money from banks who borrowed it from the Fed who just prints the stuff. And from the banks perspective, it would be like football players "asked" to make loans to the referees....are you sure you don't want to participate in the loan program.....think about it real hard before you say no thanks.....

Señor Tranche's picture

They're probably going to use the FDIC issue as a way to force through a debt ceiling raise if there is opposition.  I'm no fan of bailouts, but I do think the FDIC has to be saved or we'll be in torches and pitchforks land next time a bank fails and people realize that their accounts have been entirely wiped out. 

Anonymous's picture

South Park, that was a good episode.

Anonymous's picture

Wouldn t FDICs entry into Chapter 9 lower that ceiling?

Anonymous's picture

Anyone please, I need those Cusips on FDICs full faith CDSs ...

MyKillK's picture

And now the FDIC is considering taking out loans from the very banks it's supposed to regulate. They already have an established method in receiving funding from banks in the form of fees. So why borrow from banks when you can simply increase the fees? There's no doubt who is in charge here.

SWRichmond's picture

run on the banks?  Who said anything about a run on the banks?  I'd certainly be the last one to instigate or support a run on the banks.  I'm not even sure I want the subject of a run on the banks to come up.  Who wants to talk about a run on the banks?  A run on the banks would be devastating to everyone, including the MIC and the banksters.  I'm certain they'd really hate a run on the banks.  How did the subject of a run on the banks come up, anyway?  Let's not talk about a run on the banks, OK?  It's settled, then: no more mention of a run on the banks.

cocoablini's picture

A run? Listen, the right people will extract the money before you even get to the ATM. Just like last year, a 4 trillion digital run in 20 minutes. We don't have a prayer of collecting 1 20 dollar bill

Gilgamesh's picture

One slight correction:  Mr. Richmond was previously misinterpreted as saying 'Run on the banks,' when he actually meant 'Run in the banks.'  Apologies for any confusion.




agrotera's picture

...you are cracking me up...

Anonymous's picture

OK then - what about the run on FDIC. First one to Sheila gets to keep her 4 good.

Anonymous's picture

Time to sacrifice Summers, orszag, Geitner, Bernhake, Axelrod to the Fire Pit. Hope the Gods will look upon this favorably.

cocoablini's picture

Charleton Heston in Planet of the Apes," You did it! God damn you all to hell! You really did it!"

Anonymous's picture

Ok, with all this about the FDIC, what about the NCUA?

(The agency that insures the credit union deposits, also known as the ugly step-sister of the FDIC.)

How have credit unions been doing lately? Have the accountants at the NCUA been as busy as the guys at the FDIC?

Anonymous's picture

let's stop this madness: borrowing and spending.

waterdog's picture

Sorry FDIC, we gave it all to the banks.

Anonymous's picture

Can I just owe you? Here is my promise in gilded letters with a signature and a ribbon. That should do it.
I super duper promise and do so with all verbosity, pomposity, but no capacity (to really make good that is), it will all work out in the end.

Stretch, lie, duplicate promise, amend, prolong, counterfeit, hide, understate, rule change.

These are the ways to manage one's tiny debts.

Anonymous's picture

think the Pandit bandit might be in a position to loan some cashola to the FDIC? maybe China will bail out the FDIC...oh geez.. the possibilities seem endless in the world of ponzi finance.

Anonymous's picture

NCUA had close a few Credit Unions; see: http://www.ncua.gov/

Keep in mind that NCUA has a huge amount of cash in the billions owned by the depositors themselves.

The only way to break the NCUA is to disband the DOD and the US Military.

Anonymous's picture

The debt ceiling is a sham. It has been raise some 70 times since it's inception. It has been raised EVERY time we came close to breaching it.

If you let the people who SPEND the money (Congress) determine how much money there is to spend, then there is no limit on what is spent.

Anonymous's picture

Maybe it's time for John Q. Public to apply a 2x4 in order to get the bankster's attention.

What if every depositor at [insert too-big-to-fail bank here] simply moved their money to a small local bank during the same week, leaving the 'too-big' bank without a deposit base?

A 'Bank-a-Week' program of this sort might be noticed eventually. If nothing else it would force their hand. It would be incredibly difficult to deal with the problems caused without cronyism so blatant that even CNBC would be unable to mis-represent it and be believed.

Anonymous's picture

Did somebody say the banks have the runs or was it the runs have the banks? I'm an MBA student, thanks