A delay in approval from the Federal Deposit Insurance Corp (FDIC), the Treasury Department and Federal Reserve has left CIT in financial limbo, and potentially on the road to bankruptcy, as of Tuesday.

According to published reports, CIT has not been granted approval in its application for the FDIC Temporary Liquidity Guarantee Program, and faces a $10 billion funding gap in the year to March 31, 2010.

CIT recently converted last year to a bank holding company, but has lost close to $3.3 billion since the end of 2007. Monday, Moody’s Investors Service cut CIT’s senior unsecured credit rating to ‘B3’ from ‘Ba2’, and Standard & Poor followed close behind with a downgrade to ‘CCC+’ from ‘BB-‘.

CIT just closed a $954 million TALF-eligible equipment lease securitization on June 9, the first by CIT, as well as the first TALF-eligible small ticket equipment lease deal. The group has completed 16 term equipment securitizations since 2000, of which nine were backed solely by collateral from its U.S. Vendor Finance business.

The FDIC is wary of granting CIT access to its debt program partially because it is dissatisfied with the collateral presented by the group, an anonymous source told Reuters yesterday. The FDIC would have to absorb any losses that result from CIT, and would have to regain that money by taxing the bank industry, as the debt guarantee program does not rely on taxpayer money.

Reports say that CIT has hired Skadden, Arps, Slate, Meagher and Flom to look into the possibility of filing for bankruptcy, but there has been no filing as of yet, according to The Wall Street Journal. This has been confirmed by a CIT spokesman who declined to elaborate.

Treasury Secretary Timothy Geithner has expressed confidence in government dealings with CIT, as the Treasury and Fed continue to explore relief options.

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