WASHINGTON — Federal regulators will guarantee as much as $1.4 trillion in U.S. banks’ debt in a bid to get the distressed financial system pumping again. They also took steps Friday to make it easier for private investors to buy banks seized by the government.
Directors of the Federal Deposit Insurance Corp. voted to approve the bank-debt guarantee program, which is part of the government’s financial rescue package. The FDIC program is meant to break the crippling logjam in bank-to-bank lending by guaranteeing the new debt in the event of payment default by the borrowing bank.
“This step by the FDIC is a significant step in the right direction,” said Oliver Ireland, an attorney specializing in banking law at Morrison & Foerster who was an associate general counsel at the Federal Reserve.
Although the program itself can’t restore confidence in the financial system, “I think this is a significant contribution to containing the problem,” Ireland said.
The FDIC also will guarantee deposits in non-interest-bearing “transaction” accounts by removing the current $250,000 insurance limit on them through the end of next year.The Associated Press
