Combine this announcement with the Federal Reserve already being the lender of last resort for all short-term corporate lending, and we have the taxpayer now backing the entire financial system.

WASHINGTON (AP) -- The FDIC will guarantee up to $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan.

The directors of the Federal Deposit Insurance Corp. voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.

The FDIC will provide temporary insurance for loans between banks -- except for those for 30 days or less -- guaranteeing the new debt in the event of payment default by the issuing bank.

The FDIC also will guarantee deposits in non-interest-bearing "transaction" accounts by removing the current $250,000 insurance limit on them through the end of next year. That could add as much as $500 billion to FDIC-backed deposits.
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The original plan called for FDIC guarantees for the new debt in the event the issuing bank failed or its holding company filed for bankruptcy. That didn't correspond to the usual practice in the marketplace, bankers told the FDIC, in which payment default is normally the event that triggers insurance.

The FDIC will back new senior unsecured debt that banks issue to each other between Oct. 14 and June 30, 2009. It would be insured by the agency through June 30, 2012. Senior unsecured debt does not have collateral underlying it but must be repaid before other classes of debt.