Audit Interviewee Jon Weil, the Bloomberg finance columnist, has a good piece this morning noting that the bank regulator is in deep financial trouble, primarily and self-evidently because of its own unwillingness or inability to regulated its insureds.

Weil recalls recent remarks by Sheila Bair, the FDIC’s chairwoman since 2006 and, for my money, one of the financial crisis’s most overrated figures, in which she “muses,” as Bloomberg’s headline cheekily puts it, that the FDIC may have to borrow from the Treasury, where it has a $500 billion line of credit.

The FDIC prides itself on being supported by banks, its insureds. The Treasury, that’s taxpayers.

Bair says:

“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington.

Ah, philosophy. For a minute there, I thought this involved real money.

She adds: “This is really a debate for Washington and for banks.” There can be only one reply, and Weil provides it:

Far be it from me to intrude on this closed-circuit conversation. The question Bair posed should be a no-brainer. Borrowing taxpayer money to bail out the FDIC should be an option of last resort reserved for unforeseen emergencies. That the agency would consider this now underscores how dire its financial condition has become.

And most critically:

Whatever path it chooses, we shouldn’t lose sight of this: The FDIC has been mismanaged, and its credibility as a regulator is in tatters. Its insurance fund wouldn’t be in this position today if the agency had been run well.

This reminds me of other remarks Bair made a couple a years ago, in which she urged “Washington” to “push hard” on loan restructuring as though “Washington” was someone other than Bair herself, head of a major bank regulator.

Weil recalls another Bloomberg story by David Evans, from a year earlier, September 2008, which announced in a headline: “FDIC May Need $150 Billion Bailout as More Banks Fail.”

The FDIC’s cool, measured response in the middle of the crisis was to hit the roof and issue an open letter from a spokesman to Bloomberg editor John McCorry about what a “disservice” Bloomberg had done to itself and its own readers.

The spokesman, Andrew Gray, told Weil he stands by his remarks today. But they are not credible, as Weil shows using the FDIC’s own financial statements and words:

The FDIC said its insurance fund’s assets exceeded liabilities by $10.4 billion, a mere 0.22 percent of insured deposits, as of June 30. The liabilities included $32 billion of reserves the FDIC had set aside to cover bank failures that it believed were likely to occur during the next 12 months.

And (my emphasis):

As recently as March 31, 2008, the FDIC had earmarked just $583 million of reserves for future failures. This was after the rest of the financial world already knew we were in a crisis. By the end of 2008, it had boosted these reserves to $24 billion.

Even the most casual follower of financial news knows this crisis is measured in billions and trillions, not millions. That’s ridiculous.

There’s more:

The balance-sheet reserves don’t capture all the insurance fund’s anticipated losses. In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.

Finally:

Regardless of the law’s requirements, if the FDIC starts tapping its credit line at the Treasury, there can be no assurance it would be able to pay back all the money through future assessments on banks.

Too true. Given what we are learning about FDIC performance during the mortgage frenzy, including at IndyMac, one of the very worst of the worst, the agency in the future should, at a minimum, be more careful when throwing around words like “disservice.”

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014).

Follow Dean on Twitter: @deanstarkman.