WASHINGTON — Community bankers won an unexpected reprieve Thursday after Federal Deposit Insurance Corp. Chairman Sheila Bair said she would substantially reduce a special premium if Congress passes a bill allowing the agency to borrow more from the Treasury Department.

The move came less than a week after the FDIC said it planned to charge 20 cents for every $100 in domestic deposits to restore the Deposit Insurance Fund before it is exhausted.

But Bair told lawmakers Thursday that she would reduce that charge — sources said it would be lowered to around 10 basis points — if its borrowing authority, currently set at $30 billion, were increased.

"Because the existing borrowing authority for losses from bank failures provides a thin margin of error, it was necessary for the FDIC recently to impose increased assessments on the banking industry," Bair said in a letter to Senate Banking Committee Chairman Chris Dodd, D-Conn. "Increased borrowing authority, however, would give the FDIC flexibility to reduce the size of the recent special assessment, while still maintaining assessments at a level that supports the DIF with industry funding."

Congress is already on track to enact a bill giving the FDIC more authority. The House was expected to pass a bill late Thursday that included an increase to $100 billion.

Sens. Dodd and Mike Crapo, R-Idaho, also introduced a bill that would permanently raise the agency's borrowing authority to $100 billion but would also temporarily allow the FDIC to borrow as much as $500 billion in consultation with the president and other regulators.

In her letter, Bair expressed strong support for the Depositor Protection Act.

The bill "would leave no doubt that the FDIC will have the resources necessary to address future contingencies and seamlessly fulfill the government's commitment to protect insured depositors against loss," she wrote.

Her announcement was welcomed by bankers and their representatives, many of whom expressed outrage last week when the FDIC said it would charge a special assessment and raise regular premiums.

"We are pleased that the FDIC is responding to the overwhelming calls from the community banking industry to modify the special assessment," said Camden Fine, the president and chief executive officer of the Independent Community Bankers of America. "To her credit, Chairman Bair has been very responsive to our pleas to look again at this assessment and do what she can to ease this burden on the banking industry."

Diane Casey-Landry, the American Bankers Association's chief operating officer, said that, though a 10-basis-point premium would still present banks with a challenge, it was a "substantial reduction."

"From our perspective, we were pleased that people were listening," Casey-Landry said.

Both she and Fine said industry representatives would discuss further options with the FDIC on bolstering reserves while easing the industry impact.

"We're going to be and we are in continuous dialogue with the FDIC with respect to other solutions that will allow the industry to recapitalize the fund," Casey-Landry said.

The FDIC said it would charge the premium after federal reserves in the DIF plunged 45% in the fourth quarter, to $18.9 billion. The 20-basis-point premium was expected to raise $15 billion immediately, and regular premiums would add an additional $12 billion this year. Bair has previously appeared reluctant to tap any of the Treasury line of credit, but she said the increased borrowing limit would allow the agency to take more time to restore the fund.

"While the industry would still pay assessments to the DIF to cover projected losses and rebuild the fund over time, a lower special assessment would mitigate the impact on banks at a time when they need to serve their communities and revitalize the economy," she wrote.

Regardless of the agency's borrowing authority, Treasury funds may have to be tapped anyway if the DIF's ratio hits zero; by law, insured depositors are backed by the "full faith and credit" of the government.

Though the political environment does not favor banks, even top House lawmakers had expressed sympathy for bankers. "The recent announcement of the increased assessment is hurting some community banks," said House Financial Services Chairman Barney Frank.

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