Bair: Without Fee, Fund May Go Dry

Federal Deposit Insurance Corp. Chairman Sheila Bair told bankers the agency could wind up in the red this year without the special assessment it announced last week.

In a letter dated Monday to chief executives, as well as conference calls with members of banking trade groups, Ms. Bair tried to address criticism of her agency's decision to charge the special 20-basis-point fee at a time when banks are already losing capital.

"Banks face tremendous challenges right now even without having to pay higher assessments. We also recognize that assessments reduce the funds that banks can lend in their communities to help revitalize the economy," she wrote in the letter. "But the reality is, without these assessments, the Deposit Insurance Fund could become insolvent this year."

The FDIC approved an interim rule Friday setting the assessment, which would be charged on domestic deposits in the second quarter on top of regular premiums. The agency also would have authority to charge further special assessments of 10 basis points to ease future hits to the fund.

The special assessment has sparked heavy criticism, especially from community bankers, who say they will be hit hardest by the new cost. But Ms. Bair reiterated that maintaining the agency's fee-based status is better for banks than using funds from the Treasury Department.

"Keeping the guarantee industry funded will serve banks well once this current crisis passes," she wrote. "Turning to taxpayers for support, on the other hand, could paint all banks with the 'bailout' brush."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER