Is US poised to bail out another financial institution?
CIT is one of America’s largest lenders to small businesses. It also made many subprime mortgage loans and is now seeking US assistance.
CIT is one of the nation’s largest lenders to small businesses. It also made many subprime mortgage loans.
For the federal government, the issue is whether a CIT collapse would cause systemic risk to the fragile US economy. According to the Federal Reserve, CIT is the 26th largest US financial institution, with $75 billion in assets. This is small compared with Bank of America and Citigroup, both bailed out by the government.
So far, some banking analysts say, the Federal Deposit Insurance Corp. (FDIC), which insures deposits at banks, thinks that CIT’s failure would not cause a catastrophic tremor in the banking world. To date, FDIC has decided not to guarantee CIT’s senior debt under the Temporary Liquidity Guarantee Program.
But Treasury Secretary Timothy Geithner may have other ideas. He says the government has the authority and the ability “to make sensible choices” in the case of CIT. The Treasury has already invested $2.33 billion in preferred stock with warrants in CIT under the Troubled Asset Relief Program (TARP).