WASHINGTON — The Federal Deposit Insurance Corp. is leaning towards asking banks to prepay future fees as a way to quickly rebuild the agency's deposit insurance fund, people familiar with the matter said.
Such a move is within the agency's power and would have banks push forward some of their payments in order to recapitalize the FDIC's fund, which is supported by fees levied on the banking industry. The agency is expected to propose a new policy at a board meeting next week. A final decision on how to recapitalize the fund hasn't been made, the people said.
Recent reports said the FDIC was considering borrowing money from the banking industry to replenish the fund, a prospect downplayed by FDIC officials Tuesday. "It is an option, although it is not under serious consideration," a spokesman said.
Under the agency's current thinking, people familiar with the matter say, the upfront fees would reduce banks' future obligation to pay into the fund, giving it an immediate boost at a time of duress for the industry. It is not known how much money the prepayment plan could bring to the FDIC, but officials expect the impact to be substantial.
The FDIC had just $10.4 billion in its deposit insurance fund at the end of June to guard against more than $6.2 trillion in U.S. deposits. The FDIC has an additional $32 billion already reserved against expected losses in the next year, which agency officials believes gives them breathing room, but they want to build up their fund quickly to buttress against future failures.
The agency has several options on how to rebuild the deposit insurance fund. It has already had to hit the banking industry with a special assessment this year, which brought in $5.6 billion. With more bank failures looming, federal officials are considered hitting the industry with another special assessment and borrowing money from the Treasury Department.
Having the banking industry prepay assessments might be a middle ground. The FDIC could come up with an exemption for struggling banks to shield them from having to prepay the assessment if they were already hard-pressed to meet funding costs.
Banks pay assessments to the FDIC each quarter based on the amount of insured deposits they hold, and might pay more if they have risky business practices or are at a higher risk of failure. For example, a bank with low capital levels would likely pay the FDIC more in deposit insurance than bank with high capital levels.
The FDIC's deposit-insurance fund is used in the case of bank failures and protects insured deposits. Even though the fund is low, FDIC officials have repeatedly emphasized they are backed by the full faith and credit of the U.S. government and depositors will not lose any insured funds.
Ninety-four banks have failed so far in 2009, including several sizable banks such as Colonial Bank in Alabama, Guaranty Bank in Texas, BankUnited in Florida, and Corus Bank in Illinois. There were 416 banks on the FDIC's "problem" list at the end of June, a list of companies that are at a higher risk of insolvency.