US lender faces surprise bankruptcy threat

The little-known lender has been involved in intense negotiations with the US government, designed to ensure its survival. However last night those talks broke down, leaving the company – and the small and medium-sized customers in which it specialises – vulnerable to failure. Trading in its shares had been suspended earlier in the afternoon.

The company issues a statement saying, "there is no appreciable likelihood of additional government support being provided over the near term".

New York-based CIT has extended a variety of retailers and manufacturers loans of more than $60bn in total and so the potential effect of any failure throughout the US could be devastating. However it appears that US regulators believe that the lender is not 'too big to fail' and have chosen to draw a line in the sand.

Economists voiced their concerns that although its overall size may be dwarfed by the America's biggest banks, the breadth of its lending to some 300,000 retailers could severely dent the country's economic prospects. The key to the government's decision appears to be based on the lack of customer deposits, meaning no high-profile run on the bank, although it does mean it may lose the $2.3bn it has already given it in aid.

WHAT THEY ARE SAYING:Bert Ely, an independent banking analyst, in the Guardian: "[It’s] terrible. It's a very large lender to small and medium-sized businesses and there's a lot of legitimate concern about what would happen if it's allowed to shrink further."

Jonathan Weil on Bloomberg.com: "Investors watched yesterday as yet another major financial- services company angled for a government bailout - this time unsuccessfully - while still sporting U.S. banking regulators’ highest capital rating. It's a sure thing CIT won't be the last." ·