The FDIC is broke -- running out of cash even as the number of failing banks it insures is rising. With $10.4 billion backing $4.8 trillion in assets at the end of June, the agency is, as a doctor might put it, not compatible with life.

No need to worry, though. The agency has several possibilities to refill its coffers relatively quickly.

Show me the money
The most failsafe option is to borrow from the Treasury, where the FDIC has a $500 billion line of credit. This is politically thorny, though, since it reeks of yet another taxpayer bailout.

Another option is a one-time assessment charged to the thousands of banks the FDIC insures, as happened earlier this year. But this makes bankers squeal, since it eats into earnings -- especially troubling for deposit-heavy banks such as Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC).

A third, mind-bending option involves borrowingmoney from strong banks like JPMorgan Chase (NYSE: JPM) and US Bancorp (NYSE: USB). This might seem rational, but as my colleague Anand Chokkavelu noted last week, "[I]n effect, the Treasury is funneling money to the banks, who are then funneling money to the FDIC, so that the FDIC doesn't have to borrow money from the Treasury."

Door number four
The FDIC proposed a little-known fourth option on Tuesday. Rather than a one-time special assessment, banks will prepay their standard FDIC premiums at the end of this year through 2012. Rather than making a standard quarterly payment, they'll make a three-year payment up front.

The FDIC says that doing so will raise $45 billion. Great! That'll put its deposit insurance fund back up to the levels it occupied before banks started dying in droves.

But this is no panacea. In many ways, it's just delaying the inevitable.

Banks love the idea, because it sidesteps the one-time assessmentthat would have hammered earnings. By prepaying standard fees, they can amortize charges out to 2012, and hold the balance as a prepaid asset. Earnings won't take any more of a hit than they would from paying standard fees.

However, by not charging a special assessment, the agency raises no additional money. The FDIC gets the money sooner, but it doesn't get morethan it otherwise would from standard charges.

So what happens if this $45 billion runs out, especially if it happens before 2012? The FDIC just announced that losses from bank failures could hit $100 billion through 2013. That will almost certainly put the agency back in a bind at the same time banks aren't making quarterly payments anymore,since future payments will already have been prepaid. Continued...