FDIC proposes banks to pre-pay premiums worth $45 bn

The US Federal Deposit Insurance Corporation, the agency which insures deposits of over 8,000 financial institutions, has proposed these entities to pay up to $45 billion as advance fees to bolster its fund.

The insured institutions would need to pre-pay their deposit insurance premiums for the fourth quarter of 2009 and for all of 2010, 2011 and 2012.

The FDIC in a statement on Tuesday said it estimates that the total pre-paid assessments collected would be about $45 billion.

With rising bank failures — 95 entities have gone belly up so far this year — the reserves of FDIC have decreased since the collapses have outpaced fees coming into the agency.

The agency, which backs trillions of dollars of US deposits, had over $10 billion of deposit insurance fund at end of June, compared to nearly $45 billion a year ago.

Pre-payment of assessments would help in strengthening the cash position of the Deposit Insurance Fund (DIF).

"The banking industry has substantial liquidity to prepay assessments.

"As of June 30, FDIC-insured institutions held more than $1.3 trillion in liquid balances, or 22 per cent more than they did a year ago," the statement noted. Commenting on the proposal, FDIC Chairperson Sheila C Bair said it makes clear that the industry would "simply tap the shoulder of the increasingly weary taxpayer".

"This proposal is a vote of confidence for the banking industry's resilience and will continue to recover its strength as we work through the significant challenges ahead," Bair noted.

The FDIC insures deposits at the nation's 8,195 banks and savings associations in addition to promoting safety and soundness at these entities.

Grappling with one of the worst financial storms in decades, the Federal government has come up with various initiatives to boost the nation's sagging economy including mammoth stimulus packages.