Chipping In to Keep the Game Going

Now that the nation’s bank insurance fund is expected to run out of money, how do you spare taxpayers from getting clobbered with the bill? The banking industry now has an answer--a plan to shoulder the cost of replenishing the Federal Deposit Insurance Corp.’s vanishing fund.

Under proposals scheduled to be announced today, the banking industry would in effect front $10 billion to the FDIC--with the possibility of more to come. The complex bond-issuance arrangement involves higher FDIC premiums for banks and special assessments levied on the bigger banks. The industry also is proposing the retraction of the “too-big-to-fail” doctrine, which protects accounts even exceeding $100,000--the ordinary insured maximum--when a troubled bank is so large that its instability might threaten the financial system.

The sensible industry plan fills a glaring hole in the Treasury Department’s ambitious bank reform proposal of last week, which did not address how to recapitalize the fund. There’s shrewd public relations here: The banks’ initiative is advertised as a way to avoid hitting up the public to meet the challenge of failing banks. There’s also some smart national politics at work: The industry has been crying for years that stodgy old rules regulating banks have hung like a sack of cement around its neck.

The Treasury’s restructuring proposals were generally received by bankers with applause. Now a grateful industry is saying: Here’s $10 billion for starters to help make this whole thing fly.