When FDIC head Shelia Bair says her agency might have to bolster the
FDICs insurance fund with Treasury borrowings to pay for the new spate
of bank failures, a lot of us, this 40-year banking veteran included,
assumed theres an actual FDIC fund in need of bolstering.

We were wrong. As a former FDIC chairman, Bill Isaac, 
the FDIC Insurance Fund is an accounting fiction. It takes in premiums
from banks, then turns those premiums over to the Treasury, which adds
the money to the governments general coffers for "spending . . . on
missiles, school lunches, water projects, and the like."

The insurance premiums aren’t really premiums at all, therefore. They’re a tax by another name.

Actually,
its worse than that. The FDIC, persisting in the myth that its fund
really is an insurance pool, now proposes to raise the "premiums" it
charges banks to make up for the "funds" coming shortfall. The
financially weakest banks will be hit with the biggest tax hikes.

Which
makes absolutely no sense. You don’t need me to tell you the banking
industry is on the ropes. The last thing it needs (or the economy
needs, for that matter) is an expense hike that will inhibit banks’
ability to rebuild capital, extend new loans, or both. If the FDIC
wants to raise its bank tax once the industry has recovered, I suppose
thats fine. But to raise taxes on the industry now is perhaps the
dumbest thing the agency can possibly do. At the margin, the FDIC will
be helping bring about more of the failures it says it wants to prevent.

But
this is the government we’re talking about, so logic goes out the
window. First, the FDIC insists its mythical bank insurance fund
exists, when it really doesn’t. Then the agency does what it can to run
the imaginary funds finances straight into the ground. Your tax
dollars (sorry, "premiums") at work. . . .