Skip Header
U.S. flag

An official website of the United States government

News

The F.D.I.C. and the Loans

Last Updated: April 13, 2009

April 7, 2009
By Andrew Gray
New York Times

Andrew Ross Sorkin (Dealbook column, April 7), in his criticism of the Legacy Loans Program, accuses the Federal Deposit Insurance Corporation of ''mission creep'' and of enabling ''enormous leverage'' with ''virtually no oversight by Congress.'' We disagree.

The F.D.I.C. is providing financing and operational support for a Treasury program to remove troubled assets from bank balance sheets. The leverage contemplated under the Legacy Loans Program is significantly less than that of banks relying on F.D.I.C.-insured deposits.

The F.D.I.C. is seeking public comment on the program and has reached out to Congress, bankers and investors, as we did with the Temporary Liquidity Guarantee Program.

Both programs draw on tools authorized by Congress to address systemic risk in concert with the Treasury and the Federal Reserve.

We expect that the Legacy Loans Program will have zero net cost after losses covered by equity investments, collateral and the fees collected. Our accounting is consistent with the law, principles of business accounting and budgetary treatment of other government guarantees.

If the F.D.I.C. ultimately incurs losses, the statute requires repayment of shortfalls through assessments on the entire banking industry. Zero net cost should not be confused with the absence of risk. We have never said the program is without risk.

Without a mechanism to remove troubled loans from banks, we can expect more to fail, with the cost of those failures to be borne by the industry-backed deposit insurance fund.