Who rescues the rescuer?

Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, may have to tap tax dollars through a Treasury Department loan if Washington Mutual, the nation's largest thrift, or a rival fails, economists and industry analysts said Tuesday.

The Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance firms Fannie Mae and Freddie Mac and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase.

Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators.

Additional failures seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.

“We've got a … retail bank run forming in this country,” said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.

Treasury Secretary Henry Paulson said Monday that the country's commercial banking system “is safe and sound” and that “the American people can be very, very confident about their accounts in our banking system.” FDIC officials also have said 98percent of U.S. banks still meet regulators' standards for adequate capital.

But fear is growing about the likelihood of multiple bank failures and the strain that would put on the FDIC. The fund, marking its 75th anniversary this year, is at $45.2 billion – its lowest since 2003. And the number of troubled banks is at a five-year high.

FDIC Chairman Sheila Bair has not ruled out going to the Treasury for a short-term loan. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with the Treasury – something that has never been done.

Next month, Bair plans to propose increasing the premiums paid by banks and thrifts to replenish the fund. That plan is likely to be approved by the FDIC board, which consists of her, Comptroller of the Currency John Dugan, Thrift Supervision Director John Reich and two other officials.

Bair also is considering a system in which banks with riskier portfolios would pay higher premiums, raising the possibility of those costs being passed on to consumers.

A Washington Mutual failure would dwarf the largest bank collapse in U.S. history – Continental Illinois National Bank in 1984, with $33.6 billion in assets. By comparison, WaMu and its subsidiaries had assets of $309.73 billion as of June 30, and IndyMac had $32 billion when it shut down.

Some analysts estimate a WaMu failure would cost the FDIC more than $20 billion, but other experts say it is difficult to predict. Unknown, for example, is the amount of advances institutions may have taken from regional banks in the Federal Home Loan Bank system. Banks and thrifts have significantly increased requests for advances, or loans, from the 12 regional home loan banks since the mortgage crisis began last year.

If the FDIC doesn't have enough cash to cover the initial costs of a bank or thrift failure, one option would be short-term loans from the Treasury. That last happened in 1991-92, during the last part of the savings-and-loan crisis, when the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later.

There were 117 banks and thrifts considered in trouble in the second quarter, the highest level since 2003, according to FDIC data released last month. The agency doesn't name institutions on its internal list of troubled banks. On average, 13 percent of banks that make the list fail.