Fee hike OK'd for insurance fund

WASHINGTON • A plan for rebuilding the deposit insurance fund at a time of banking turmoil would more than double the industry's average premiums next year and could bring higher costs for bank customers.

The Federal Deposit Insurance Corp. approved the proposal by Chairman Sheila Bair at a meeting Tuesday. It will raise the average insurance premiums paid by U.S. banks and thrifts to 13.5 cents for every $100 of their deposits from the current 6.3 cents.

The FDIC plan calls for higher-risk institutions to pay bigger insurance fees. It is based on a projected $40 billion loss to the insurance fund from bank failures through 2013, according to FDIC estimates.

For institutions deemed to be in strong financial condition - 91 percent of roughly 8,500 insured banks and thrifts - the average rate would be 11.6 cents.

"The U.S. banking industry has the willingness and capacity to provide the necessary backing to the insurance fund," Bair said. "The entire capital of the banking industry stands behind the fund, as does the full faith and credit of the United States government.

The public can be sure that we will always have enough money to protect their insured deposits."

The FDIC has been working on the plan since July, before the account insurance limit was temporarily raised to $250,000 from $100,000, in the $700 billion federal bailout legislation enacted on Friday. The increases in bank premiums proposed Tuesday will cover only up to the previous insured $100,000 limit per regular deposit account.

Thirteen federally insured banks and savings and loans - including two major thrifts - have failed this year, and more collapses are expected. The deposit insurance fund is now at $45.2 billion - below the minimum target set by Congress and the lowest level since 2003. The FDIC plan aims to rebuild it within five years to an even higher level than the law requires.

Although the increased premiums "pose an extra burden on every bank, the industry is quite capable of meeting this obligation," said Edward Yingling, president and chief executive of the American Bankers Association. "The vast majority of banks remain strong in spite of the deteriorating economy."

John Douglas, an FDIC general counsel during the savings and loan crisis, said the increased premiums "aren't going to kill the banking industry."

"It's a marginal increase in the cost of doing business," said Douglas, who heads the bank and financial institutions group at law firm Paul Hastings. "Eventually, consumers pay for all of this," in the form of higher fees for bank services or lower interest paid on deposits, he added.

The FDIC board issued the proposal for public comment for 30 days, and it should be formally adopted sometime after that. The plan would take effect in two stages, with an initial set of increases coming in the first quarter and additional rises starting in April.