FDIC wants banks to pay more into insurance fund

WASHINGTON -- The Federal Deposit Insurance Corp. Tuesday proposed doubling the fees it charges banks to protect consumer deposits, predicting its reserve fund could take a $40 billion hit through 2013 as more troubled lenders fail.

The FDIC insures bank deposits, including personal savings accounts and certificates of deposit. A sweeping financial rescue law enacted last week temporarily raises the limit on FDIC-covered accounts to $250,000 from $100,000. The increase is in effect until the end of 2009.

Tuesday's proposal would cut banks' pretax income by about 5.6%, according to the FDIC. Still, the agency didn't use its full legal authority to build up an even more robust trust fund balance.

"The U.S. banking industry has the willingness and capacity to provide the necessary backing to the insurance fund," said FDIC Chairman Sheila Bair. "The public can be sure that we will always have enough money to protect their insured deposits."

Separately, the FDIC proposed easing capital requirements for banks that hold Fannie Mae and Freddie Mac debt. The FDIC said that debt is less risky since the government took over the mortgage giants last month.

Since the beginning of the year, the FDIC has closed 13 failing banks, including the high-profile meltdown of IndyMac, a California-based mortgage lender. The agency's estimate of $40 billion in losses, which aides acknowledged is highly uncertain, includes the $11 billion in losses it has already incurred, including the $8.9 billion IndyMac shutdown.

Banks today pay an average assessment of 6.3 basis points to FDIC to cover deposits. A basis point is the equivalent of one penny for every $100 in a savings account. Under the proposal, which is open for a 30-day comment period, the average bank assessment would rise to 13.5 basis points from April 2009 through the end of the year, and 12.6 basis points from 2010 on.

The FDIC would require banks that rely heavily on secured debt to pay bigger fees. The FDIC's rationale: Because those banks may rely more on borrowing than on deposits, they would otherwise pay less into the insurance fund, yet would be potentially riskier.

Karen Thomas, executive vice president for government relations at the Independent Community Bankers of America, said small banks are concerned that the FDIC proposal would raise fees for lenders that depend on the nation's system of Federal Home Loan Banks for liquidity.

Banks with a significant amount of brokered deposits would also pay higher premiums, the FDIC said. These deposits are sold through brokers and often pay a higher interest rate than CDs sold directly through banks.

While brokered deposits can provide a troubled bank with quick cash, they're considered risky because investors tend not to stick around once their CDs have matured.

Three of the banks that failed this year had large concentrations of brokered deposits. Brokered deposits accounted for 30% of IndyMac's deposits.

James Chessen, chief economist for the American Bankers Association, said the ABA is concerned that the proposal doesn't take into account different types of brokered deposits. Some brokered deposits, he says, are owned by longtime customers who have "sweep" accounts with a brokerage firm that's affiliated with the bank, he said. "We don't think it's appropriate to penalize those stable sources of funding in an effort to clamp down on brokered deposits."