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Published: Wednesday, 9/30/2009

FDIC votes to require early premium payment

ASSOCIATED PRESS

WASHINGTON - Regulators expect the cost of bank failures to grow to about $100 billion over the next four years - up from an earlier estimate of $70 billion. Faced with that sobering news, they voted yesterday to require banks to prepay $45 billion in premiums to replenish an insurance fund that will start running dry.

The proposal by the board of the Federal Deposit Insurance Corp. to require early payments of premiums for 2010-2012 could take effect after a 30-day public comment period.

The government fully backs the FDIC, which means depositors' money is guaranteed up to $250,000 per account. But requiring prepaid insurance fees would be a first time for the agency.

The insurance fund has been sapped by billions from a rash of bank failures that began in mid-2008. The banking industry prefers the prepaid premiums over a special emergency fee, which would be the second this year.

Without added special fees or increases in regular premiums, the insurance fund - at $10.4 billion at the end of June - will become "significantly negative" next year and could remain in deficit until 2013, the FDIC is now projecting.

Ninety-five banks have failed so far this year as losses have mounted on commercial real estate and other soured loans amid the most severe financial climate in decades. That has cost the fund about $25 billion, the FDIC said.

Most of the $100 billion in costs are expected to come from failures this year and next, the agency said. Some analysts expect hundreds more banks to fail in coming years.



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