Here are some of the alternatives for aiding the Federal Deposit Insurance Corp. that are being discussed by banking industry leaders and government officials:
Sell FDIC preferred stock. Banks would be required to use 1 percent of their assets to buy "preferred stock" in the FDIC. The FDIC would get an infusion of about $5 billion cash while banks could keep the stock on their books as an investment. Objections: Accountants argue this is "an accounting gimmick" because it permits "double counting" of money that would be considered an asset of both the banks and the FDIC. Another often asked question: How can you sell stock in a government agency?
Create an FDIC reserve fund. Banks would be required to put 1 percent of their assets into a new FDIC reserve fund. Objections: Another "double counting" gimmick, says the Congressional Budget Office.
Prepay FDIC premiums. Banks would be required to prepay their FDIC deposit insurance premiums for the next five years. The FDIC would get cash, also about $5 billion, up front in what amounts to a loan from the banks. Banks would earn interest on the money and would write off one-fifth of the money each year. Objections: Accountants are more comfortable with prepayment than the preferred stock or 1 percent deposit ideas, but the plan doesn't give the FDIC any more money than it would otherwise collect; the cash just comes in quicker.
Tap the Federal Reserve. There are two proposals to use the non-interest-bearing accounts known as "sterile reserves" that all banks must deposit with the Federal Reserve. One plan calls for the Fed to start paying interest on the reserves and to channel $2 billion a year in interest to the FDIC. Another suggestion is to abolish the Fed's reserve requirement and transfer the $37 million in reserves to the FDIC. Objections: Abolishing the Fed's reserve requirement or paying interest on the reserves would cut the Fed's earnings by $2.5 billion a year. Those earnings are now paid to the Treasury, reducing the federal budget deficit.
Borrow from the Treasury. Congress long ago gave the FDIC a $5 billion direct line of credit from the Treasury for use in emergencies. Since this is clearly an emergency, the FDIC ought to use its borrowing power. Objections: Borrowing from the Treasury is really borrowing from the taxpayers, which bankers want to avoid.
Borrow from the Federal Financing Bank. In addition to its line of credit from the Treasury, the FDIC also can borrow through the Federal Financing Bank, another branch of the government. Objections: Like borrowing from the Treasury, this would amount to tapping the credit of the taxpayers.
Revive the Reconstruction Finance Corp. The Depression-era RFC bought stock in troubled banks and other failing businesses to keep them afloat. A new RFC would invest in declining banks so they wouldn't go broke, reducing FDIC costs. Objections: Investing government money in ailing banks would amount to nationalizing banks and bailing out their stockholders, who now lose their entire investment when a bank fails. There is also concern that political influence might determine which banks are rescued.