FDIC Raising Fees on Banks, Adds Emergency Fee

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 emergency 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 ravages of 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.

The emergency premium, to be levied on the roughly 8,500 federally insured institutions on June 30, will be 20 cents for every $100 of their insured deposits. That compares with an average premium of 6.3 cents paid by banks and thrifts last year.

In addition, the FDIC raised the regular insurance premiums for banks to between 12 and 16 cents for every $100 in deposits starting in April, up from a range of 12 to 14 cents.

The law requires the insurance fund to be maintained at a certain minimum level but it fell below that minimum—1.15 percent of total insured deposits—in mid-2008.

But 25 U.S. banks failed last year—including two of the biggest thrifts—more than in the previous five years combined and up from only three failures in 2007.

The failures sliced the amount in the deposit insurance fund to $18.9 billion as of Dec. 31, the lowest level since 1987. That compares with $52.4 billion a year earlier.

The FDIC reported Thursday that U.S. banks and thrifts lost $26.2 billion in the last three months of 2008, the first quarterly loss in 18 years, as the housing and credit crises escalated. Banks also more than doubled the amount they set aside to cover potential loan losses, to $69.3 billion in the fourth quarter from $32.1 billion a year earlier.

The agency said there were 252 banks and thrifts in trouble at the end of 2008, up from 171 in the third quarter.

Two of the biggest bank failures in the nation's history occurred last year and involved thrifts.

Pasadena, Calif.-based IndyMac Bank collapsed in July and cost the federal deposit insurance fund $10.7 billion and Seattle-based Washington Mutual was the largest U.S. bank failure ever. WaMu fell in September, with around $307 billion in assets, and was acquired by JPMorgan Chase for $1.9 billion in a deal brokered by the FDIC.

• Slideshow: Bank Failures of 2008

Thrifts are important to consumer lending because they must have at least 65 percent of their lending in mortgages and other consumer loans, but that also has made them especially vulnerable to the housing downturn.

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