“We believe that it is essential to utilize this authority to accelerate the pace of loan modifications in order to halt and reverse the rising tide of foreclosures that is imperiling the economy,” Federal Deposit Insurance Corp Chairman Sheila Bair said in prepared remarks to be delivered to the House Financial Services Committee. from Reuters

FDIC is the one guaranteeing bank/S&L deposits up to certain limits which means that when a bank/S&L goes belly-up, FDIC is the entity that will either be making depositors whole, or they’ll be co-ordinating the sale of the failed institution to a stronger one.  Those sales will usually also require FDIC funds, but not as much as a full FDIC takeover.

It does not surprise me that Sheila Bair considers the use of Troubled Asset Relief Program funding “essential” from an FDIC perspective.  Considering the high probability of many bank failures over the next few years, FDIC surely needs and wants Treasury money to stem the foreclosure tide.  If the Treasury prevents, or slows the amount of bank failures by reducing foreclosure volume, then FDIC isn’t going to have as big a problem with the financing of bank takeovers/sales.