Watchdog tells US banks to pay $45bn into insurance pot
US banks are to pay $45bn (£27bn) to the Federal Deposit Insurance Corp (FDIC) to cover the rising cost of banking failures.
In an unprecedented move, the FDIC board approved the prepayment of three years of premiums at a meeting yesterday.
The prepayment has been described as an alternative to imposing another hefty emergency fee on the still-recovering industry, or having the FDIC tap its line of credit with the Treasury Department.
FDIC Chairman Sheila Bair said: “Many institutions are only beginning to recover.”
The agency collects insurance premiums from all banks and uses this to repay depositors in failed banks.
But the deposit insurance fund went into the red at the end of the third quarter following the highest annual level of bank failures since 1992.
The American Bankers’ Association said the prepayment would be a strain, but was preferable to other options for meeting the costs of bank failures.
ABA Chief economist James Chessen said: “The prepaid assessment does come at a cost to the banking industry, impacting bank liquidity and reducing resources available for lending.”
Regulators have closed 120 banks in the US so far this year as the industry struggles with deteriorating loans. This compares with only 25 last year and three in 2007.
The FDIC has estimated the total cost of failures at $100bn from 2009 to 2013. It said it would consider exempting a handful of struggling banks.