FDIC to raise premiums to boost fund

WASHINGTON - US regulators yesterday said they will raise premiums paid by banks for deposit insurance by 7 basis points, citing recent and projected bank failures that are depleting a reserve fund.

"We do need to take this unfortunate step," Federal Deposit Insurance Corp. chairwoman Sheila Bair said.

The rate increases will go into effect on Jan. 1.

FDIC staffers said they expect the industry-funded reserve to drop to $28 billion in the first quarter of 2009, from $34.6 billion in the fourth quarter. After various expenses and investment income, the FDIC said, the fund may end up at $29.1 billion in the first quarter.

Banks will have to pay 7 cents more for every $100 in deposits, depending on the institution and its risk level, bringing premiums to between 12 cents and 50 cents.

As part of the unanimous vote by the five-member FDIC board, the rule allows regulators to adjust the rates for the second quarter.

So far this year, 25 banks have failed, including big mortgage lenders Washington Mutual and IndyMac, requiring the FDIC to draw down the deposit insurance fund, which started the year at $52.4 billion.

As part of the massive $700 billion bailout package for financial institutions, US lawmakers increased the FDIC's insurance coverage to $250,000 from $100,000 per depositor through 2009.

That measure was aimed at calming the financial markets quickly, as one big institution after another was spiraling downward. It also reassured some businesses that keep more than the coverage limit in bank accounts.

The American Bankers Association called the premium increase significant but said banks could bear it. But another trade group, the Independent Community Bankers of America, said the increase is disappointing for the industry, which is made up of mostly smaller banks.