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FDIC to consider prepaid insurance

FDIC expected to require banks to prepay fees

WASHINGTON -- The Federal Deposit Insurance Corp. may take the unprecedented step of ordering banks to prepay about $36 billion in premiums to shore up the shrinking deposit insurance fund.

The FDIC board likely will call for "prepaid" bank insurance premiums at its meeting today, three industry executives and a government official said. The banking industry prefers that option over a special emergency fee -- which would be the second this year. The officials spoke on condition of anonymity because the decision has yet to be made public.

It would be the first time the FDIC has required prepaid insurance fees. Under the plan, banks would have to pay in advance their insurance premiums for 2010-2012, bringing in about $12 billion for each of the three years, two of the officials said. That is the normal amount of insurance fees, though it could vary somewhat according to growth in total insured deposits -- the basis for determining the fees.

Off the table, at least for now, are the options of tapping the agency's $500 billion credit line with the Treasury Department and borrowing billions of dollars from healthy banks by issuing its own debt, the officials said.

A spokesman for the FDIC declined to comment Monday afternoon.

FDIC Chairman Sheila Bair said earlier this month that she was "considering all options, including borrowing from Treasury," to replenish the insurance fund. Yet she is generally perceived as considering that the most unpalatable approach.

Borrowing from the Treasury could create the undesirable impression of another taxpayer-financed bailout, while borrowing from the banks might make the FDIC look as if it were beholden to the banking industry, experts say.

Losses on commercial real estate and other soured loans have caused 95 bank failures so far this year amid the most severe financial climate in decades. The insurance fund fell 20 percent to $10.4 billion at the end of June, its lowest point since 1992, at the height of the savings-and-loan crisis. The fund has now slipped to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent.

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