While banks such as Goldman and J.P. Morgan have managed to find a way to re-pay the capital injections made under the TARP bailout, their reliance on public subsidies is far from over. The federal government, via a debt guarantee program run by the FDIC, is still putting considerable taxpayer funds at risk on behalf of the banking industry. The Wall Street Journal estimates that banks participating in the FDIC debt guarantee program will save about $24 billion in reduced borrowing costs of the next three years. The Journal estimates that Goldman alone will save over $2 billion on its borrowing costs due to the FDIC’s guarantees.

One of the conditions imposed by the Treasury department for allowing banks to leave the TARP was that such banks be able to issue debt not guaranteed by the government. Apparently this requirement did not apply to all of a firm’s debt issues. These banks should be expected to issue all their debt without a government guarantee and be required to pay back any currently outstanding government guaranteed debt.

To add insult to injury, not only are banks reaping huge subsidies from the FDIC debt guarantee program, but the program itself is likely illegal. The FDIC’s authority to take special actions on behalf of a failing “systemically” important bank is limited to a bank-by-bank review. The FDIC’s actions over the last several months to declare the entire banking system as systemically important is at best a fanciful reading of the law.

The FDIC should immediately terminate this illegal program and end the continuing string of subsidies going to Wall Street banks, many of which are reporting enormous profits.