The board of FDIC proposed Tuesday that U.S. banks prepay three years worth of regular industry fees to help cover the rising cost of bank failures. So far this year, 95 lenders have failed, compared to 25 last year, and only 3 in 2007. The FDIC staff said it is facing a $100-billion cleanup bill through 2013, up from a previous estimate of $70 billion.
The board recommended that its member banks pay approximately $45 billion in advance to the cash-strapped Deposit Insurance Fund [DIF], whose balance is expected to become negative this quarter and will remain negative through 2012. According to the proposal, the banks would not have to recognize the charges on their balance sheets until the quarter when the fees were due.
FDIC Chairman Sheila C. Bair said, “First and foremost, bank customers should know that their insured deposits have and always will be 100 percent safe, no matter what. This commitment to depositors is absolute. The decision today is really about how and when the industry fulfills its obligation to the insurance fund…”
The DIF, which insures up to $250K per depositor in each bank, now stands at about $10.4 billion from $45 billion a year earlier, the lowest since the peak of the S&L crisis in 1993.
As of June 30, FDIC-insured institutions held more than $1.3 trillion in liquid balances, or 22% more than they did a year ago.
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Of course the banks are going to complain about this being demanded from them, but they have to like it more than just being assessed special assessment after special assessment. When you think about it on a smaller scale they do have the right to complain. After all, I’m sure none of us would like if the utility company all of a sudden asked us to prepay for 3 years worth of electricity. However, the FDIC faces a secured future. Banks and the FDIC need to work together to function properly and I really have no problem with this course of action. Faced with a difficult situation, its really the best course of action.
Check out my blog on the FDIC’s current situation at…. http://www.thedebtgazette.com/2009/09/fdic-bailout-from-banks/