FDIC says bank failures to cost around $100B

WASHINGTON (AP) — Federal regulators said Tuesday they expect bank failures to cost the deposit insurance fund about $100 billion in the next four years and the fund to begin running at a deficit this month.

That is higher than an earlier estimate of $70 billion in failure costs through 2013.

The Federal Deposit Insurance Corp. made the projections as its board voted to propose requiring banks to prepay an estimated $45 billion in regular insurance premiums for 2010-2012. The proposal could take effect after a 30-day public comment period.

"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.

The insurance fund has been sapped by billions from a rash of bank failures that began in mid-2008. The banking industry prefers that option over a special emergency fee — which would be the second this year.

It was the first time the FDIC has required prepaid insurance fees.

Bair didn't rule out the possibility of the agency tapping its $500 billion credit line with the Treasury Department, if the economy doesn't stage a full recovery. However, there is a recognition in the banking industry that "everybody's got bailout fatigue," she said

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. 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.

Some analysts expect hundreds more banks to fail in the coming years. But the FDIC is fully backed by the government, which means depositors' money is guaranteed up to $250,000 per account.

An emergency insurance fee on banks, which took effect June 30, brought in around $5.6 billion. Another one would allow the healthiest banks to keep more capital for investment, but could drive weaker banks toward failure, further depleting the insurance fund.

"We're pleased that they're looking at alternatives to another special assessment," Karen Thomas, executive vice president of government relations at the Independent Community Bankers of America, said late Monday.

In addition to the insurance fund, the FDIC has about $21 billion in cash available in reserve to cover losses at failed banks, down from $25 billion at the end of the first quarter. The independent agency likely wouldn't consider tapping its credit line at the Treasury unless that cash were depleted, FDIC officials have said.