FDIC expects bank failures to cost more, hikes bank fees
WASHINGTON -- Facing a cascade of bank failures depleting the deposit insurance fund, federal regulators on Friday raised the fees paid by U.S. financial institutions and levied an additional premium in a bid to collect $27 billion this year.
The Federal Deposit Insurance Corp. now expects that bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. The bank failures, 14 already this year following 25 last year, reflect the rising unemployment and falling home prices that have sent loan defaults soaring.
The FDIC said the economic crisis, which has caused the insurance fund to drop to its lowest level in nearly a quarter-century, also warranted extending the plan to rebuild the insurance fund from five years to seven.
"We're taking steps today to ensure that the deposit insurance system remains sound," FDIC Chairman Sheila Bair said at a board meeting to vote on the changes. "These steps are necessary because banks — and not taxpayers — are expected to fund the system."
But the head of the Office of Thrift Supervision, who is one of the board members, voted against the fee increases. John Reich said the fees would unfairly burden smaller banks that didn't contribute to the financial crisis with reckless lending.
Bair said the plan protects bank depositors — by safeguarding the fund that insures regular accounts up to $250,000. Taxpayers also are protected because it likely means the FDIC will not have to go to the Treasury Department and tap public money to replenish the insurance fund, she added.
Bair has not ruled out that possibility for a short-term loan, but said she doesn't expect to take the more drastic action of using its $30 billion long-term credit line with Treasury — something that has ever been done.
"Treasury exists for contingencies and should not be relied upon for planning purposes," Bair said Friday. "If we were to turn to taxpayers to cover fund losses, this could open up a whole new debate about the degree of government involvement in the affairs of insured banks."
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