In a move which may end up trying to save the US banking system, the Treasury is considering backing all bank deposits and guaranteeing billions of dollars in bank debt.
The backing of deposits might slow the outflow of deposits which is damaging bank balance sheet.
According to The Wall Street Journal, the plan "would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks."
Both plans are only in the "consideration" phase, which is a shame. The federal government is almost certainly reacting too slowing to the fast-growing credit crisis which has now engulfed world markets. The damage is now running well ahead of the efforts by the Fed and Treasury to contain it.
If stock markets continue their unprecedented sell-off and bank shares drop at a rate of 10% a day, the actions which are only in early stages of consideration will have to be implemented in a matter of days.
If the government continues to drag its feet, it may have not feet to drag.
Douglas A. McIntyre
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