Why does anyone think it’s a good idea for the Federal Deposit Insurance Corp. to borrow money from some of the nation’s largest banks? That’s a trial balloon being floated by the agency, which insures deposits and regulates banks’ safety and soundness. The appeal of a private loan is that it wouldn’t require a harsh special assessment on all banks, which by law must pay for the FDIC’s insurance losses, and wouldn’t be as politically embarrassing as a bailout by the Treasury. Camden Fine, president of the Independent Community Bankers, tells the New York Times that the FDIC’s chairwoman wants to avoid the Treasury solution at all costs:

Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help. She’d do just about anything before going there.

Washington power politics is one thing, however; sound regulatory policy is another. To me, the biggest issue is the potential loss of independence for one of Washington’s cleanest, and most credible, financial regulators. Robert Cyran at BreakingViews.com frames the problem succinctly:

It is an open invitation for regulatory sympathy at best and outright capture at worst.

Felix Salmon of Reuters points out that the bank loans would be backed with an implicit government guarantee, so the private-loan scheme is really just a bailout by another name. Says Salmon:

Once again, the FDIC is using government guarantees, rather than real cash, and pretending that doing so doesn’t cost the government anything. We’ve done that too many times already - including in the Bear, BofA, and Citi bailouts - and we should be putting an end to such shenanigans.

Let’s hope this trial balloon gets shot down quickly.