FDIC seeks to raise bank premiums
The proposal would double the amount banks pay to insure their deposits. It is part of a five-year plan to replenish the government's insurance fund, which has been hit by the failure of IndyMac and other institutions.
WASHINGTON -- Federal regulators today proposed doubling the amount banks pay to insure their deposits, reflecting the hit the government's insurance fund has taken by the failure of Pasadena-based IndyMac Bank and 12 other institutions this year -- and projections of more failures to come.
The board of the Federal Deposit Insurance Corp. gave unanimous initial approval to a five-year plan to replenish the Deposit Insurance Fund, which has fallen below its mandated level.
The fund had $45.2 billion as of June 30, representing 1.01% of insured domestic deposits. It is not supposed to fall below 1.15%, and the FDIC prefers it to be at 1.25% so that there is enough money to cover insured deposits in failed banks.
The failure of IndyMac has cost the fund $9 billion alone, and the FDIC estimates the total hit to the fund this year will be almost $13 billion. The agency projects additional failures will drain another $27 billion from the fund by the end of 2013.
The fund's ratio will dip as low as 0.65% of insured domestic deposits before the increased premiums would start raising that figure toward the mandated level. At the end of five years, it would stand at 1.26%.
The changes, which would take effect Jan. 1, would pump $10 billion into the fund next year. But that money would come from banks, which are struggling with their own finances and liquidity. The increased premiums would cause pre-tax earnings to drop by about 5% a year at the average bank, according to the FDIC.
"We are trying to take a measured approach. We're clearly ware of the challenges the industry is facing right now," FDIC Chairwoman Sheila Bair said shortly before the agency's board unanimously approved seeking public comment on the plan. "The industry understands the need to do this and understands the need from a public-confidence perspective."
The average annual bank premium for the fund from 2009 until the end of 2013 would increase from 6.3 cents per $100 of deposits as of June 30 to 13.5 cents. But the overall range of fees will be wide depending on the FDIC's complex assessment of a bank's risk to fail -- from 5 cents per $100 of deposits for well-capitalized banks to 43 cents for the riskiest banks.
The FDIC board is expected to give final approval to the plan in December.
