Monday, March 9, 2009

FDIC warns US bank deposit insurance fund may tank

FDIC warns US bank deposit insurance fund may tank

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The Federal Deposit Insurance Corporation is warning banks that its deposit insurance fund could dry up this year amid rising bank failures although the deposits would remain fully backed by the government.

The head of the Federal Deposit Insurance Corporation, Sheila Bair, in a letter to bank chief executives dated March 2, defended the FDIC's plan to raise fees on banks and assess an emergency fee to shore up the fund and maintain investor confidence.

Bair acknowledged the new fees, announced Friday, would put additional pressure on banks at time of financial crisis and a deepening recession, but insisted they were critical to keep the insurance fund solvent and protected.

"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote.

The FDIC chief said in the letter that the rapidly deteriorating economic conditions raised the prospects of "a large number" of bank failures through 2010.

"Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative," she wrote.

The FDIC last Friday announced it would impose a temporary emergency fee on lenders and raise its regular assessments to shore up the rapidly depleting deposit insurance fund that insures individual customer deposits up to 250,000 dollars.

A week ago the FDIC reported a sharp depletion of the deposit insurance fund in the fourth quarter due to actual and anticipated bank failures, to 19 billion dollars from 34.6 billion in the third quarter.

The FDIC said it had set aside an additional 22 billion dollars for estimated losses on failures anticipated in 2009.

"Some have suggested that we should turn to taxpayers for funding. But banks -- not taxpayers -- are expected to fund the system, and I believe Congress would look skeptically on such a course of action," Bair wrote.

"All banks benefit from the FDIC's industry-funded status and should take pride in it. Keeping the guarantee industry funded will serve banks well once this current crisis passes. Turning to taxpayers for support, on the other hand, could paint all banks with the 'bailout' brush."

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