Since there are shiny new bankfails every weekend, it appears the FDIC’s coffers are finally starting to look a little bare. When this happens, the agency has four options to raise some cash: it can raise the rate of the insurance premium it charges member banks, it can levy a special one-time assessment against its member banks, it can hit up Timmay for a loan, or it can hit up its member banks for a loan. (I guess it can also start issuing IOUs to depositors of future failbanks but I don’t think that would go over all that well right now.)

Asking banks to contribute more to the insurance fund would put a hit on their earnings that they are all so enjoying bandying about, so you know that is not going to happen. This leaves taking out a loan from the Treasury or from the banks themselves. Since apparently Sheila Bair is as loath to ask Timmay for help as Joan was to ask Don on Sunday night’s episode of Mad Men, the latter approach appears to be winning favor:

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors, The New York Times’s Stephen Labaton reports. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.

“It’s a nice irony,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company, told The Times. “Like so much of this crisis, this is an issue that involves the least worst options.”

In Soviet Russia, bank bails out you!

The lending banks will receive bonds at an interest rate TBD, which are an asset on their books. Much better than asking them to actually pay a few extra dollars in risk premium, don’t you think?

PS – I don’t have any Photoshop access this morning, so the fine graphic is from Toothpaste for Dinner.