WASHINGTON — When it comes to the money in your bank account, security has a price. And it's going up.
With the failure of Pasadena-based IndyMac Bank and a dozen other institutions draining the government's deposit insurance fund well below its mandated level -- and projections of more failures to come -- federal regulators moved Tuesday to replenish the fund, giving initial approval to a five-year plan that would more than double the amount banks pay to insure their deposits.
Bankers said they could afford the increase approved by the Federal Deposit Insurance Corp., which on average would cause premiums to rise to 13.5 cents per $100 of deposits from 6.3 cents. But they noted that higher premiums would add to the cost of doing business in already difficult times.
That means consumers should expect slightly higher fees and lower interest rates, said Ed Mierzwinski, consumer-program director for the U.S. Public Interest Research Group.
"The banks have always had the imprimatur of federally guaranteed insurance . . . that has encouraged conservative investors to put their money in banks," he said. "Unfortunately they're going to pay for the risks that bank executives took on with their reckless mortgage lending in the form of higher premiums."
Federal officials boast that no customer has ever lost a cent of a federally insured deposit, a guarantee made since the Depression that has kept consumers from draining their bank accounts in subsequent financial crises. To expand that confidence, Congress included in the recently approved Wall Street bailout legislation a temporary increase in the coverage for individual accounts to $250,000 from $100,000.
"In other words, if you've got cash in a bank of up to $250,000, it's safe," President Bush said Tuesday. "The FDIC has never failed to make good on its promise, and it won't fail to make good on its promise."
But to keep that promise, the FDIC needs more money.
The deposit insurance fund had $45.2 billion as of June 30, representing 1.01% of insured domestic deposits, its lowest ratio since 1994. The fund is not supposed to fall below 1.15%, and the FDIC prefers it to be at 1.25%.
The FDIC estimates this year's bank failures will cost the fund almost $13 billion and projects additional failures will drain an additional $27 billion by the end of 2013.
"The industry understands the need to do this and understands the need from a public-confidence perspective," FDIC Chairwoman Sheila Bair said.
