Friday, August 21, 2009

Expect banks to be hit with major fees for deposit insurance

From MarketWatch:
FDIC Considers Another $5.6B Fee on Banks

The bank collapses and the FDIC's depleted deposit insurance fund -- $13 billion on hand as of May -- are leading observers to speculate that the agency will hit banks with two large special fees it said it would consider in September and December that could each roughly match a $5.6 billion one-time fee it charged banks in May. That fee is payable by Sept. 30.

In addition to the assessment, banks are charged periodic fees -- totaling $15 billion a year-- to fill the fund, which used to pay depositors of failed institutions.

Congress in May also gave FDIC the authority to borrow as much as $500 billion from the Treasury Department until the end of 2010 to fill the depleted funds, and increased its permanent borrowing limit to $100 billion from $30 billion.

The FDIC may borrow capital from Treasury's federal financing bank, not only in a situation where its deposit insurance fund has run out, but because it needs liquid working capital to finance additional bank closures.

In good times, the fund has been made up of liquid Treasury bonds. However as the economy declined, a larger amount of the fund has become illiquid receivership assets made up of problematic loans that can't be used -- at least not in the short term -- to resolve the next failed institution. An injection of capital from Treasury may be necessary so that the FDIC can resolve the next failing institution.