FDIC may exclude shortest term loans from insurance plan

Federal Deposit Insurance Corp (FDIC) staffers are likely to recommend exclusion of the shortest-term loans from a $1.4 trillion debt-insurance program, Bloomberg reported, citing a person briefed on the plan.

The exclusion of loans that mature in 30 days or less, which would encompass overnight interbank loans at the rate targeted by the U.S. Federal Reserve, would help the Fed avoid further unpredictable swings in the country's main interest rate, the news agency reported.

FDIC Chairman Sheila Bair and other board members are scheduled to vote on Friday on regulations governing the plan, it said.

The Fed has failed for two months to keep the federal funds rate close to the target set by policy makers because of more than $1 trillion of loans flooding the banking system, the report said.

The original FDIC proposal required fees to insure debt, spurring complaints that it would lead to an exodus from the $250 billion market for overnight loans between banks, it said.

Companies including JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) said the original proposal threatened to make the overnight federal funds market too costly compared with alternatives such as direct loans from the Fed, the report said.

http://www.reuters.com/article/bondsNews/idUSBNG19268720081121

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FDIC may exclude shortest term loans from insurance plan