Regulators expect the cost of bank failures to grow to about $100 billion over the next four years -- up from an earlier estimate of $70 billion. Faced with that sobering news, they voted Tuesday to require banks to prepay $45 billion in premiums to replenish an insurance fund that will start running dry on Wednesday.
The proposal by the board of the Federal Deposit Insurance Corp. to require early payments of premiums for 2010-2012 could take effect after a 30-day public comment period.
The FDIC is fully backed by the government, which means depositors' money is guaranteed up to $250,000 per account. But it would be the first time the agency has required prepaid insurance fees.
"I do think this is a good balance," FDIC Chairman Sheila Bair said. The plan requires the banking industry "to step up" while spreading the financial hit to banks over a number of years, she said.
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An insurance payment by the industry of $45 billion "is not going to constrain lending," she said.
The insurance fund has been sapped by billions from a rash of bank failures that began in mid-2008. The banking industry prefers the prepaid premiums over a special emergency fee -- which would be the second this year.
Without additional special fees or increases in regular premiums, the insurance fund -- at $10.4 billion at the end of June -- will become "significantly negative" next year and could remain in deficit until 2013, the FDIC is now projecting.
Ninety-five banks have failed so far this year as losses have mounted on commercial real estate and other soured loans amid the most severe financial climate in decades. That has cost the fund about $25 billion, the FDIC said Tuesday. The $10.4 billion already was the fund's lowest point since 1992, at the height of the savings-and-loan crisis. That is equivalent to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent.
Most of the $100 billion in costs are expected to come from failures this year and next, the agency said. Some analysts expect hundreds more banks to fail in coming years.
Bair didn't rule out the possibility of the FDIC tapping its $500 billion credit line with the Treasury