White House Plan to Bolster FDIC Dealt New Setbacks
Federal Reserve Board Chairman Alan Greenspan yesterday rejected the Bush administrationÛªs plan to borrow from the Fed to pay for bank failures. Congressional Democratic leaders said they will push through legislation to tap the Treasury if the Federal Deposit Insurance Corp. runs short of cash.</br></br>Greenspan told the Senate Banking Committee that using the Fed to finance the FDIC might ÛÏcompromise the independent conduct of monetary policy" and could set a dangerous precedent for using the central bank to pay for ordinary government expenses.</br></br>Simultaneously, House Democratic leaders agreed on a plan to let the FDIC borrow directly from the U.S. Treasury if its reserve fund is further depleted by bank failures. They vowed to deliver a bill to the House floor within two weeks designed to cut the cost of bank failures and refinance the FDIC. The plan was endorsed by House Speaker Thomas S. Foley ID-Wash.), banking committee Chairman Henry B. Gonzalez (D-Tex.) and Rep. Frank Annunzio (D-Il).), who heads a key banking subcommittee.</br></br>The two developments could not only derail the administrationÛªs plan for pumping cash into the FDIC, but could also pose a major setback to White House hopes for enacting the most sweeping changes in the nation's</br></br>In the midst of the worst run of bank failures since the Great Depression, Treasury officials had been counting on borrowing from the Fed as a way to avoid a direct taxpayer bailout for the dwindling FDIC fund. And they had been counting on the need to replenish the FDIC to motivate Congress to pass its far-reaching banking reform and restructuring plan.