"Funding deposit insurance
Published: March 24 2009 14:44 | Last updated: March 24 2009 20:03
Hedge funds are going to help out with deposit insurance. In fact, the Federal Deposit Insurance Corporation’s role in the Treasury’s legacy loan programme means all manner of private investors, including insurance companies, pension funds and even private equity, could help repair the US depository safety net. Those investors might even be foreign under the programme’s rules.The FDIC has always been funded through premiums on the banking industry. But it is moving to broaden its funding base. The deposit insurance fund, at just 0.4 per cent of insured deposits, is depleted – and top-up premiums are unwise when banks are under stress. So, the FDIC last week announced surcharges on institutions using its debt guarantee programme. The latest move goes further. A portion of the fees for guaranteeing private investors’ debt funding to buy banks’ loans will go to the DIF. Unclear is how much, and to what extent guarantee fees will be risk-adjusted."