FDIC likely to ask banks to prepay fees for 3 years

The Federal Deposit Insurance Corporation, the agency which insures deposits of over 8,000 US banks, is anticipated to propose the banks to prepay three years' fees to boost its fund, says a media report.

Quoting people familiar with the matter, The Wall Street Journal has reported that the FDIC is expected to "propose Tuesday that the bulk of the banking industry prepay three years' worth of fees to replenish the fund that insures trillions of dollars of customers' deposits".

The report said having banks pay up front for 2010, 2011 and 2012 could bring between $36 billion and $54 billion to the FDIC.

"The agency's board, which will make the final proposal, could still decide to pursue a different strategy before it meets Tuesday morning," the daily said.

According to the publication, the move is expected to be met by complaints from the banking industry because of the amount of money that would have to be paid upfront.

"Still, some might see prepaid assessments as preferable to another option, a one-time charge that wouldn't offset any future obligations to pay into the fund," it added.

The agency which backs trillions of dollars of US deposits, had just $10.4 billion of deposit insurance fund at end of June, compared to $45.2 billion a year ago.

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

"The FDIC has to rebuild its fund when it dips below a certain level — which happened months ago — and it has been debating how best to do that.      

"Options included hitting the industry with a special assessment, borrowing money from the industry, borrowing money from the Treasury Department, or having banks prepay their assessments," the daily said.      

The Wall Street Journal noted that it is possible not all banks would have to prepay assessments.      

A special exemption could be made for banks struggling financially, though a policy in this area has not been finalised, it added.