FDIC Tells Banks To Pay $45 Billion in Premiums Early

Washington, D.C. (AHN) – American banks will have to pay forward $45 billon in insurance premiums by the end of the year that normally would be paid out over the next three years.

The Federal Deposit Insurance Corp. took the action Thursday to ensure that it has enough funds on hand to deal with future bank failures. The fund is used to repay depositors up to $250,000 per account should their bank fails.

Some 120 banks have been seized so far this year by the FDIC, compared to only three in 2007. About $32 billion has been reserved for expected failures through June, and the FDIC predicted bank failures through 2013 will cost $100 billion. The FDIC is required to rebuild the fund when the ratio of balance to insured deposits drops beneath 1.15 percent. As of June, the ratio was 0.22 percent.

The FDIC chose to require early payment of the premiums rather than get a loan from the Treasury Department or to add a special fee to the regular premiums.

James Chessen, chief economist for the American Banking Association, applauded the FDIC decision. In a statement, Chessen said “It strikes the right balance between making sure the FDIC has the cash necessary to meet its obligations and not unduly impairing banks’ ability to meet their obligations to their communities. The pre-paid assessment is far superior to another special assessment, which would likely do more harm than good as it would directly hinder capital growth and make lending much more difficult.”

Regular premiums for the banking industry will total $18 billion this year, he said.