FDIC Poised to Double Fees Charged to Lenders Article

By DAMIAN PALETTA WASHINGTON -- Federal regulators are expected to raise the fees that they charge banks by more than double in an effort to replenish the government's deposit-insurance fund, said people familiar with the matter. The move represents a clash of two competing interests. It would protect consumers by bolstering the fund that insures their deposits in the event of a bank failure. At the same time, some government officials worry that banks are too fragile to shoulder the additional cost. Banking officials have said the Federal Deposit Insurance Corp. should explore other avenues to replenish the fund, something the agency has resisted. Sheila Bair "It's a value and, unfortunately, we're going to have to charge more for it," FDIC Chairman Sheila Bair told reporters Thursday. She declined to comment on the specific level of the fee increase. The FDIC had $18.8 billion in its deposit-insurance fund at the end of the fourth quarter to protect about $4.8 trillion in insured deposits at U.S. banks. This is the lowest insurance level since the savings-and-loan crisis, FDIC officials said. Fourteen banks have failed this year so far, bringing the total to 35 since July. The FDIC is required by law to launch a plan to restore the fund any time it dips below 1.15% of insured deposits. It was at 0.4% of insured deposits at the end of the fourth quarter. The fund is entirely financed by fees levied on banks. Some bankers and analysts have said the FDIC should instead tap an existing credit line it has with the Treasury Department and wait several years before raising fees. "They've got to wait to do it if they have any hope of getting banks' stocks in the right direction," said James Abbott, a senior analyst with FBR Capital Markets. "Banks can't afford to take it in 2009. They can't really afford to take it in 2010." Additional Details Get full details on U.S. bank failures since the start of 2008.Banks and thrifts were hit with big premium increases in the 1990s, but those took place after the savings-and-loan crisis when banks had mostly regained their footing. The FDIC's five-member board is expected to vote Friday to temporarily raise the bank fees, a move that could bring in more than $14 billion a year into its deposit-insurance fund, people familiar with the plans said. This would be on top of the roughly $10 billion the FDIC brings in annually from its regular assessments. Ms. Bair has said for months that she would prefer not to tap the Treasury line, and FDIC officials said there are no plans to take that step now. Banks typically pay the government between 12 cents and 14 cents for every $100 of insured deposits, though unhealthy banks can pay much more. The government is considering an additional 20-cent charge for every $100 insured, people familiar with the matter said. The figure still was being debated late Thursday and could change before Friday's vote. "Clearly it's going to pull capital from banks at a time when they need capital," said Keith Leggett, a senior economist at the American Bankers Association. "I think it really requires the FDIC to have the judgment of Solomon here." The banking industry lost $26.2 billion in the fourth quarter of 2008, the FDIC said, the first quarterly loss in 18 years. At the end of the fourth quarter, there were 252 banks and thrifts on the government's "problem list," a tally of banks that are at a higher risk of failure. That is up from 171 at the end of the third quarter. The FDIC doesn't release the names of the banks on its "problem list." It said the companies had combined assets of $159 billion, up from $116 billion at the end of September. About one in four banks was unprofitable in 2008, the highest level in 25 years. "There is no question that this is one of the most difficult periods we have encountered during the FDIC's 75 years of operations," Ms. Bair said. The slew of recent bank failures has put strains on the deposit-insurance fund, although not all collapsed banks are equally costly. The FDIC estimated that the failure of Silver Falls Bank in Oregon on Feb. 20 cost its fund $50 million, while it said the failure of IndyMac Bank in July cost $10.7 billion. The number of bank failures in the last two years is still much lower than the 534 banks that failed in 1989. Still, some analysts have predicted that as many as 1,000 banks could fail over the next three to five years because of losses on real-estate-related loans. The failure of Washington Mutual Inc. last year was the biggest bank failure in U.S. history. Washington Mutual had $307 billion of assets when it failed Sept. 25. The government has taken a number of steps to protect the banking industry in the past six months, with the FDIC taking on hundreds of billions of dollars in additional risks. The FDIC now backs most accounts up to $250,000. Some business accounts have unlimited deposit insurance. The Obama administration has signaled that it won't let any more large banks fail. The Treasury Department launched a series of tests this week at the country's 19 largest banks to determine if they need more capital to continue lending. Write to Damian Paletta at damian.paletta@wsj.com