An op-ed article in today's New York Times on the latest bank bailout outlined the "vast swath of new powers" that will be given to the FDIC by the Treasury and foresaw the possible demise of "obscure regulatory animals," including the NCUA.
The article, written by Felix Salmon, a finance blogger for Portfolio.com, said that because Congress was in no mood to pass a new bank rescue package, the Treasury was forced to come up with an alternate plan that combines remaining TARP funds along with "a rather ingenious use of guarantees by the Federal Deposit Insurance Corp."
"Now, however, instead of insuring garden-variety bank deposits, the FDIC is going to insure extremely risky loans to curious new entities called public-private investment funds," wrote Salmon. "The FDIC has never taken on this kind of risk before."
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Salmon said that Treasury Secretary Timothy Geithner needed the FDIC's cooperation for the plan but pointed out that few federal agencies ever object to an idea that involves expanding their budgets and making them more important.
"In this case, the FDIC Chairwoman Sheila Bair had particular reason to want to grab as much power as possible: the Obama administration is about to embark on the largest overhaul of the American regulatory infrastructure since the Great Depression" he wrote.
"America's patchwork quilt of financial regulators is looking decidedly frayed around the edges," the article said. "Chances are that the Federal Reserve, rather than the Securities and Exchange Commission or any other agency, will end up regulating the entire financial system…. Then, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Commodity Futures Trading Commission and any number of other obscure regulatory animals risk being killed off."
Salmon said the bank bailout plan makes the FDIC well-positioned to survive. Not only will it be an integral part of the new bank bailout, but it is also likely to be put in charge of taking over any failing financial firms that pose a systemic risk.
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