A deepening recession is now expected to more than double the projected cost of protecting customer deposits at failed US banks, leading regulators on Friday to raise the insurance premiums paid by banks. Without the extra money, the Federal Deposit Insurance Corp said its insurance fund would be wiped out by bank failures this year. Currently the fund insures up to $250,000 per depositor.
The FDIC projects it will need $83 billion through 2013 to safeguard depositors, up from a previous $40 billion estimate. The deposit insurance fund took a big hit during the fourth quarter, plunging almost 50 percent to $18.9 billion in preparation for actual and expected bank failures. So far this year 14 banks have failed, a pace that could result in the FDIC seizing more than 100 banks by the end of 2009. By comparison, 25 banks failed in 2008 and just 3 in all of 2007.
The FDIC board of directors voted 4-1 to approve a package of measures aimed at raising as much as $27 billion this year in assessment revenues, including $15 billion from a one-time fee in the third quarter. Last year, the FDIC raised $3 billion in fees from banks.
FDIC Chairman Sheila Bair, who voted in favour of the increased fees, said regulators tried to balance the agency's need to restore its insurance fund with banks' ability to lend to consumers and businesses. "I believe that the regular assessment rates we're considering and the special assessment rate achieve that balance," she said at an open board meeting.
The FDIC's budget is financed by more than 8,300 banks, which pay the agency to insure customer deposits. Congress is considering making permanent this year's $250,000 deposit coverage, up from $100,000 to boost confidence in banks. The FDIC's plan for a special assessment represents the first such move since 1996, when regulators took similar action in the aftermath of the savings and loans crisis. The 20 basis point fee, to be paid in the third quarter of 2009, amounts to $200,000 per $100 million in domestic deposits.
Banks said the new fees will be burdensome and might get in the way of lending. "Large premium increases designed to quickly build up the fund result in less money in the system and decreased lending capacity for banks," said Edward Yingling, president of the American Bankers Association.
Independent Community Bankers of America President Camden Fine said "community banks are being kicked in the teeth" by higher fees that big Wall Street banks should cover. The FDIC board also voted to raise the range of regular quarterly fees that banks must pay to obtain deposit insurance, beginning in the second quarter of 2009. If conditions deteriorate, and the FDIC faces an emergency, the agency said it could also impose a special 10 basis point quarterly assessment.
The 25 US bank failures in 2008 cost the agency $18 billion, the FDIC said. Another $65 billion in bank failure costs is expected from 2009 to 2013, it said. Previously the FDIC had thought $40 billion over the 2008-2013 period would be adequate.
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