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Jeffrey Immelt

CLARO CORTES IV

If General Electric were a superhero, GE Capital would be its kryptonite. The industrial giant has taken extraordinary measures to reduce its subsidiary's toxicity, but Moody's credit rating downgrades earlier this week are a reminder that the conglomerate needs to wrap its finance arm in the only thing that will neutralize the threat of a market-run: deposits.

It's not as if GE is unaware of the issue. No financial firm that went through the financial crisis would be. In fact, GE has already been on the hunt for deposits, scooping up $7.5-billion-(U.S.)-worth in December from MetLife, which was as eager to get out of banking as the industrial and financial giant is to get into it.

But GE chief executive Jeff Immelt needs to load up with far more than that if he wants to dispel any doubts about the firm's vulnerability in a market meltdown. After all, GE has a $554-billion balance sheet, and still relies on the commercial paper market for a decent slug of its funding.

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Replacing that $44-billion of short-term market funding with FDIC-insured retail deposits would send a powerful signal. Granted, GE has more than enough cash socked away to cover its commercial paper loans should panic strike again. That's one of the reasons investors demand so little compensation for buying GE Capital's longer-term debt – its 10-year bonds yield just 2.02 percentage points over U.S. Treasuries.

But after 2008, funding models are what matter. And regulators, rating agencies and investors consider government-backed deposits the best protection against future market volatility. Of course, GE isn't alone in hunting for more retail cash to fund its lending. Capital One scooped up ING Direct, which GE looked at. And CIT also wants to bulk up, once regulators allow it. There aren't too many options that would solve GE's needs in one go, though – Ally Financial would, but no buyer will want ResCap, its problematic, near-bankrupt mortgage unit.

That means GE may have to stitch together a patchwork of smaller banks. That won't be quick, but GE does have time on its side. Funding costs are cheap and likely to stay that way for some time. That should keep its kryptonite from burning as it builds up deposits to contain it.

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