Underfunded FDIC to Propose Prepayment from Banks

September 29, 2009

(ChattahBox) — The Federal Deposit Insurance Corp. (FDIC) is expected to propose Tuesday, that banks pay three years’ worth of fees up front in premiums in order to replenish the deposit insurance fund that insures trillions of dollars of customers’ deposits. The FDIC, reportedly has $10.4 billion in its deposit-insurance fund at the end of June, compared with $45.2 billion a year earlier. The funds have been severely depleted by a rash of bank failures, which have outpaced fees coming into the agency.  The FDIC as you know provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank.

The banking industry is expected to protest, because of the amount of money that would have to be paid upfront, but still may prefer this option over a special emergency fee — which would be the second this year.  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 between $36 billion and $54 billion to the government agency.  Many so called experts would prefer the FDIC to borrow the needed fund money instead from the Treasury because the banking industry is still reeling from the financial crisis.  But others view borrowing from the Treasury as severe crisis management and fear potentially panicking the public to start stuffing money in their mattresses rather than trusting shaky banks.


One Response to “Underfunded FDIC to Propose Prepayment from Banks”

  1. Frank Fitton on September 29th, 2009 1:18 pm

    Of course the banks are going to complain about this being demanded from them, but they have to like it more than just being assessed special assessment after special assessment. When you think about it on a smaller scale they do have the right to complain. After all, I’m sure none of us would like if the utility company all of a sudden asked us to prepay for 3 years worth of electricity. However, the FDIC faces a secured future. Banks and the FDIC need to work together to function properly and I really have no problem with this course of action. Faced with a difficult situation, its really the best course of action.

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