THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Bank failures cost FDIC, not taxpayers

FDIC chairwoman Sheila Bair said yesterday the agency has not had to borrow any money from the US Treasury. FDIC chairwoman Sheila Bair said yesterday the agency has not had to borrow any money from the US Treasury. (Tim Boyle/ Bloomberg News)
By Dave Carpenter
Associated Press / October 27, 2009

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CHICAGO - With the number of bank closings above 100 this year for the first time since 1992, the head of the Federal Deposit Insurance Corp. says she’s frustrated at perceptions that US taxpayers are on the hook for the costs of those failures.

“We have not borrowed a penny from Treasury,’’ FDIC chairwoman Sheila Bair reiterated yesterday. “I hope we don’t have to. If we do, we’ll pay it back promptly.’’

In remarks to the American Bankers Association, Bair sought to dispel any false impression that the government is paying for the 106 banks that have been shut down so far this year.

Taxpayers are not liable for the roughly $25 billion that this year’s bank failures have cost the FDIC’s federal deposit insurance fund.

Bank failures are expected to cost the fund $100 billion through 2013. The FDIC has asked banks to pay in advance $45 billion in regular premiums that would have been due over the next three years, hoping to avoid or at least delay having to ask the Treasury Department to help replenish the fund.

As the recent spate of bank failures drained the fund, the FDIC also imposed a special one-time fee on the banks earlier this year.

The FDIC can borrow to up to $500 billion from the Treasury - or $100 billion without seeking approval from the Treasury and Federal Reserve.

But the FDIC has sought to avoid that partly because of fears it will appear to be another taxpayer bailout.

No matter how the fund is shored up, banks eventually will have to pay higher premiums to cover the costs of the failures.

The FDIC insures deposits at more than 8,000 institutions. The independent agency is backed by the government, and deposits are guaranteed up to $250,000 per account. The FDIC also still has tens of billions in loss reserves apart from the insurance fund.