What Happens If Deposit Insurance Meets the Debt Ceiling?

In the event of more bank failures, absent a resolution to the Debt Ceiling, the FDIC could be unable to draw on its credit line from the Treasury

• Ongoing concerns about the health of the US banking system, coupled with Secretary Yellen’s pledge to shield depositors (albeit ex post), make it worthwhile to consider risks to the FDIC and its Deposit Insurance Fund (DIF)–especially in light of the looming political stand-off over the Debt Ceiling.

• Should the assets of the DIF be depleted (as it was in 1990 and in 2009), the FDIC can call on a $100bn credit line from the Treasury Department. But under the binding conditions of the debt ceiling, Treasury’s decision to satisfy any FDIC claim to replenish the DIF could bring forward the debt ceiling “X date” or, in the worst case, Treasury could be unable to fully satisfy the FDIC claim if the X date had already been crossed.