FDIC expected to require banks to prepay fees

WASHINGTON — The Federal Deposit Insurance Corp. is expected to take the unprecedented step of collecting billions of dollars in banks' regular premiums early to shore up the shrinking deposit insurance fund.

The FDIC board likely will call for "prepaid" bank insurance premiums at its meeting Tuesday, 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 in 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. Some analysts expect hundreds more banks to fail in the coming years and the FDIC forecasts the fund will need $70 billion through 2013 to deal with those losses.