FDIC’s Bair Says Insurance Fund Could Be Insolvent This Year
Alison Vekshin
March 3 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up if the agency doesn’t impose additional fees on the industry amid a surge in bank failures.
“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry.
“A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”
The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said. The fund was drained by 25 bank failures last year.
U.S. community banks plan to flood the FDIC with about 5,000 letters in protest. They are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said today in a telephone interview.
“I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.
‘Significant Expense’
“The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” Bair wrote. “We did not want to impose large assessments when the industry and economy are struggling. We searched for alternatives but found none better.”
The agency, which has released the change for 30 days of public comment, could modify the assessment to shift the burden to the large banks “that caused this train wreck,” Fine said. “Community bankers are feeling like they are paying for the incompetence and greed of Wall Street,” he said.
Bair dismissed that suggestion.
“For risk-based assessments, our statute restricts us from discriminating against an institution because of size,’’ Bair wrote.
Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department.
“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.”
The FDIC “will revise the interim rule, if appropriate, in light of the comments received,” the agency said in a Federal Register notice posted today.
To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.
Last Updated: March 3, 2009 21:26 EST