WASHINGTON — The Federal Deposit Insurance Corp. is considering using fees from its special liquidity guarantee program to help fund the Deposit Insurance Fund, sources said Monday.
The agency, which is to discuss the issue at a board meeting today, so far has kept revenues from its Temporary Liquidity Guarantee Program separate from its reserves.
But with the fund battered by current and anticipated losses, sources said this separation may change. Allowing at least some fees from the program to boost the DIF's balance could potentially reduce premiums, which are slated to rise sharply in the second quarter due to a one-time assessment.
The FDIC is also expected to raise fees for certain kinds of debt issuance covered by its program.
"What we have heard is, they are considering increasing the fees and subsidizing the DIF with some of the TLGP fees," said Chris Cole, a vice president at the Independent Community Bankers of America. "They certainly are looking at all sorts of income revenue opportunities in lieu of the special assessment."
Under one part of the program, unveiled in October, banks and holding companies can opt in for a federal guarantee until 2012 for senior unsecured debt that is issued before October of this year. Under a separate component, institutions can also choose complete coverage of zero-interest deposits until the end of 2009.
Currently the debt-coverage program has three possible prices — 50, 75 and 100 basis points — and an institution's fee depends on the debt's period until maturity. Banks participating in the extra deposit coverage pay 10 basis points. Though the programs received ample use in the fourth quarter — the debt program alone raised $3.4 billion — the DIF has been pummeled. Last quarter, its reserves fell 45%, to $18.9 billion. The ratio of reserves to insured deposits fell to 0.40%, forcing the agency to act quickly to raise the ratio to the statutory minimum of 1.15%. Last month, the FDIC said it would charge a special, 20-basis-point assessment on all institutions' second-quarter domestic deposits.
But since then, agency officials have said they would be willing to cut the assessment — observers said it could go as low as 10 basis points — if Congress increases the FDIC's line of credit with the Treasury Department to $100 billion, from $30 billion.
Putting TLGP fees into the fund could potentially push the special assessment even lower, observers said. "I'm hopeful that, if money can be used immediately from the TLGP fees, that that should help to lower the special assessment on banks … below 10 basis points," said James Chessen, the American Bankers Association's chief economist.
An FDIC spokesman would not comment on the board's action today, but said the agency is "open to finding ways to alleviate pressure on the DIF if it is consistent with our statutory authority and requirements."