September 29, 2009 in Business

FDIC may tap banks

‘Prepaid’ insurance premiums would shore up fund
Marcy Gordon Associated Press
 
Tags:FDIC

Bank failures

Losses on commercial real estate and other soured loans have caused 95 bank failures so far this year. Some analysts expect hundreds more banks to fail in the coming years, and the FDIC forecasts the fund will need $70 billion through 2013 to deal with those losses.

WASHINGTON – The Federal Deposit Insurance Corp. may take the unprecedented step of ordering banks to prepay about $36 billion in premiums to shore up the shrinking deposit insurance fund.

The FDIC board likely will call for “prepaid” bank insurance premiums at its meeting today, three industry executives and a government official said. The banking industry prefers that option over a special emergency fee – which would be the second this year. The officials spoke on condition of anonymity because the decision has yet to be made public.

It would be the first time the FDIC has required prepaid insurance fees. Under the plan, banks would have to pay in advance their insurance premiums for 2010-2012, bringing in about $12 billion for each of the three years, two of the officials said. That is the normal amount of insurance fees, though it could vary somewhat according to growth in total insured deposits – the basis for determining the fees.

Off the table, for now, are the options of tapping the agency’s $500 billion credit line with the Treasury Department and borrowing billions of dollars from healthy banks by issuing its own debt, the officials said.

A spokesman for the FDIC declined to comment Monday afternoon.

FDIC Chairman Sheila Bair said earlier this month that she was “considering all options, including borrowing from Treasury,” to replenish the insurance fund. Yet she is generally perceived as considering that the most unpalatable approach.

The first emergency fee, which took effect June 30, brought in an estimated $5.6 billion. Another one would allow the healthiest banks to keep more capital for investment, but could drive weaker banks toward failure, further depleting the insurance fund.

“I think they will continue to levy (emergency) assessments on an ad hoc basis,” said Bert Ely, a banking industry consultant in Alexandria, Va.

In addition to the insurance fund, the FDIC has about $21 billion in cash available in reserve to cover losses at failed banks, down from $25 billion at the end of the first quarter. The independent agency likely wouldn’t consider tapping its credit line at the Treasury unless that cash were depleted, FDIC officials have said.

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