CHICAGO — Regulators at the American Bankers Association's annual meeting here discussed how best to replenish the Deposit Insurance Fund.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., backed her agency's plan to have banks pay three years of premiums up front and pump an estimated $45 billion into the DIF, rather than call on a line of credit at the Treasury Department.

"I know we all have bailout fatigue," Bair said. "Our staff has made some pretty pessimistic projections on what our cash needs will be and we think the $45 billion will keep us cash-positive. I want to avoid borrowing from the Treasury, because I think it would be harmful to the industry and to the FDIC."

Bair said that the public already mistakenly believes the FDIC is funded by taxpayers, and that tapping the Treasury line would only compound that. While the audience was in agreement about the public's perception of the FDIC's funding, Dugan garnered massive applause when he said he opposed the up-front-payment approach.

John Dugan, the comptroller of the currency, and John E. Bowman, acting director of the Office of Thrift Supervision — both of whom hold seats on the FDIC board — staked out slightly different positions.

"I think it would be much better if we can pay it over time," Dugan said, adding that a hit to bank bottom lines right now would "exacerbate the problems."

In a brief interview after speeches by Bair and Dugan, Bowman went a bit further than Dugan.

"I prefer the countercyclical approach," he said. "The other way hits the banks when they can least afford to do it."

Dugan and Bowman hold two of five votes on the FDIC board, and the other two FDIC board members — Tom Curry and Marty Gruenberg — are expected to support Bair's prepay approach. Comments on the plan are due Wednesday.

Jim Marcuccilli, president and chief executive of the $1.7 billion-asset Star Financial Bank in Fort Wayne, Ind., said he thinks the DIF should be rebuilt by borrowing from the Treasury. But given the options laid out by the regulators, Marcuccilli leaned more toward Dugan's position. "A rule based on one person's opinion is never good, so I think it is critical to have that dialogue," Marcuccilli said. "But I still think that allowing us to amortize it out would give us the chance to get healthy again."

Before the speeches, Marcuccilli said he mostly wanted to hear from the regulators an affirmation that banks — namely community banks — did not touch off the financial crisis. Bair and Dugan did not disappoint; both discussed the need to prevent unregulated or thinly regulated firms from causing a future meltdown.

In response to a question about overdraft fees, Bair caught the crowd off guard when she suggested that the product could be treated like credit, complete with an APR, since that's how many consumers use the service.

"Some are spending several thousands on overdraft protection each year … and they shouldn't be using that product that way," Bair said. "That is not good for relationships and it is not good for the banking industry."

Dugan reiterated his concerns with regulatory reform legislation, specifically language qualifying national preemption. "It invites 50 different states to make 50 different rules," he said. "That is a compliance risk for all of you."

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