Large Bailed-Out Bank Struggles to Survive

by Paul Kiel
ProPublica, July 13, 2009, 10:09 a.m.

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When CIT Group received $2.3 billion in taxpayer funds last year, it wasn't because it was struggling; it got the money through a program for "healthy" banks. Officials have said that banks receiving the money are supposed to be able to use it to boost lending -- not stave off disaster.

But despite the $2.3 billion in aid, CIT is facing the possibility of bankruptcy, The Wall Street Journal reports. CIT, while not quite as big as the 19 banks that underwent stress tests earlier this year, is a major lender with $75 billion in assets. Its specialty is lending to small and midsize businesses, although it made a foray into subprime mortgage lending.

The bank's failure to get even more government aid has pushed it to the crisis point. Months ago, it applied to an FDIC program that guarantees debt sold by banking firms -- the same program that has been such a boon to GE, one of CIT's competitors. But the FDIC has yet to approve the application, both the Journal and Bloomberg News report, because of concerns about CIT's viability.

So now CIT is "scrambling," reports the Journal, to find a cure for its problems. One of its primary options has been more government aid, but administration officials don't think CIT is "too big to fail," says the Journal, meaning that the firm may be on its own.

Other links this morning:
From Treasury to Banks, an Ultimatum on Mortgage Relief (NYT)
AIG Plans Millions More in Bonuses (WaPo)
White House Eyes Bailout Funds to Aid Small Firms (WaPo)
Good Citi and Bad Citi (NYT)
Looking for the Lenders’ Little Helpers (NYT)

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