FDIC to require banks to prepay $45 billion to cover failures
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Thursday, November 12, 2009; 11:17 AM
The Federal Deposit Insurance Corp. will collect $45 billion from the banking industry to cover the rising cost of bank failures, an unprecedented assessment that reflects the agency's projections that the current round of failures will not peak until next year.
The FDIC's board voted Thursday morning to authorize the special collection, which requires banks to pay now the amount that they would owe the FDIC over the next three years. The agency collects insurance premiums from all banks, which it uses to repay depositors in failed banks.
So far this year the FDIC has seized 120 banks, compared to only three in 2007.
The FDIC still holds billions of dollars to cover expected losses, but as of September it has exhausted its reserves against unexpected losses for the first time since the early 1990s. There is no risk to depositors, as the FDIC can always turn to the federal government for emergency funding.
FDIC officials have said, however, that they would rather rely on the industry to replenish the coffers. FDIC Chairman Sheila Bair thanked the industry for its support of that approach, which she has described as important to maintain public confidence in the FDIC and in the industry.
"I'm pleased but not surprised by the industry's willingness to step up to the task," Bair said Thursday.
The FDIC's plan was carefully crafted to satisfy a variety of concerns.
The agency initially proposed collecting a special assessment from banks, as it did earlier this year, but industry groups and members of Congress had complained that doing so would drain capital from banks, limiting the industry's ability to make new loans.
Some members of Congress urged the FDIC to borrow money from Treasury instead.
The FDIC chose a third approach. The money it is collecting from banks is legally a prepayment of the premiums banks would be required to pay over the next three years. The FDIC gets the money immediately, but the banks are not required to report a diminution in their capital until the quarter in which each portion of the assessment would have been collected.
