WASHINGTON — The Federal Deposit Insurance Corp.’s growing involvement in efforts to rescue the financial system is raising concerns that its core mission may be blurred. The agency’s role has greatly expanded as the Treasury Department has turned to the FDIC to run a critical piece of a plan to remove toxic assets from bank balance sheets, according to American Banker, an affiliate of Credit Union Journal.
Congress is also weighing whether to grant the FDIC the power to resolve systemically important nonbanks, and its borrowing authority from the Treasury is poised to more than triple, to $100 billion.
What’s more, the agency has guaranteed $335 billion of debt issued by banks and holding companies, and is providing unlimited coverage for $684 billion of deposits that do not bear interest, American Banker noted.
Some observers say all these changes pose risks, including a loss of independence and a dilution of the FDIC’s focus on protecting depositors. “They’re moving away from being an insurer and really becoming a backdoor funding agency of the Treasury Department,” Kenneth Guenther, the former longtime head of the Independent Community Bankers of America, told American Banker.
Until now much of the focus during the financial crisis has been on the Federal Reserve Board, with critics raising the same question about independence and alleging the central bank has put its balance sheet at risk.
The Treasury announced last month that the FDIC and the Fed would split duties under the Public-Private Investment Program. The FDIC would guarantee and hold auctions for debt used to buy toxic loans through the Legacy Loans Program, while the Fed would oversee a program designed to create a market for illiquid securities.
Late last month the administration unveiled a legislative proposal for the FDIC to handle resolution duties for all systemically risky institutions, including bank holding companies and nonbanks.
Some former FDIC officials worry these new roles could make the agency too political.
