WASHINGTON -- The Bush administration, facing mounting opposition in Congress and the Federal Reserve Board, is considering backing away from its own $70 billion plan to rescue the depleted fund that protects deposits in the nation's banks, ,, White House officials say.
While continuing to defend the controversial proposal publicly, senior administration officials now concede that the current plan has the potential to turn into a massive taxpayer bailout of the banking industry, much like the rescue effort for savings-and-loans.
Indeed, the mounting criticism that the plan is receiving in Congress is prompting a growing split between the White House and the Treasury over the issue -- and a new round of recriminations within the administration.
The White House officials, who asked not to be identified, said yesterday that they now believe that the current plan to rescue the deposit fund has little chance for passage in Congress, and think that the administration will soon have to develop a new proposal.
It was not immediately clear what the administration might be considering as an alternative. The White House is beginning to develop possible substitutes for the current plan -- though the Treasury remains committed to keeping the present proposal intact.
Meanwhile, senior White House officials are seeking to distance themselves from the plan and the potential for blame that could come if the banking crisis worsens.
They now say that Secretary of Treasury Nicholas F. Brady was warned, before the rescue plan was announced, that it would be viewed as a back-door attempt to push through a government rescue for the banks, but they say that Brady went ahead with the plan anyway.
Top Treasury officials, however, deny that any warnings were issued to Brady, and note that White House Chief of Staff John Sununu and Office of Management and Budget Director Richard Darman both supported the refinancing plan when it was first proposed.
The rescue of the insurance fund, which protects bank deposits up to $100,000 per account, is one of the most pressing tasks that Washington faces this spring as it attempts to deal with the nation's worst wave of bank failures since the Great Depression.
And the internal dispute over the issue could make it far more difficult for the administration to win support in Congress for its broader banking agenda. The administration proposal to bolster the deposit fund calls for the Federal Deposit Insurance Corp. to receive up to $70 billion in new resources, and includes an unprecedented provision that would allow the FDIC to borrow up to $25 billion from the Federal Reserve.