NEW YORK — In a sign that the financial crisis is not yet over, CIT Group Inc., the No. 1 lender to small and mid-size U.S. businesses, is holding advanced talks with the government about receiving emergency federal assistance, officials said Monday.
A main focus of the negotiations, which involve the Treasury Department and other agencies, is CIT's request to receive help through a Federal Deposit Insurance Corp. program that would guarantee the ailing lender's debt, two sources briefed on the talks said. They spoke on condition of anonymity because of the negotiations.
But the FDIC has so far resisted the idea, the sources said, citing concerns about expanding the Temporary Liquidity Guarantee Program beyond its original purpose as well as the risk of backing CIT's debt should the company fail.
FDIC spokesman Andrew Gray said CIT's application to the program is pending but would not elaborate.
New York-based CIT did not return calls seeking comment.
The company's stock fell toward $1 Monday as investors fearing a bankruptcy court filing unloaded the shares. A collapse of CIT, whose 1 million clients include big names, including the franchisees of Dunkin' Donuts and retailer Dillard's Inc., could deal a devastating blow to the economy by cutting off financing just as businesses need it most, analysts warned.
That could force thousands of small and medium-size companies to drastically cut costs or shut down — driving up unemployment and dashing hopes for a swift economic recovery.
"They'd have to lay people off, downsize and maybe shut their doors," independent banking analyst Bert Ely said of CIT's clients. "It would hardly be positive for the economic recovery."
CIT's crisis brought back memories of the brutal losses suffered by fallen Wall Street firms Bear Stearns and Lehman Brothers. It also posed yet another challenge to the Obama administration, which is struggling to right to the economy despite a $787 billion stimulus and a raft of federal bailout programs.
"This could affect the lifeblood of the flow of goods to the stores," said Vincent Arscott, senior director of Fitch Ratings.