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Recent Bank Failures Too Much For FDIC

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Recent Bank Failures Too Much For FDIC

Economy

Recent Bank Failures Too Much For FDIC

Recent Bank Failures Too Much For FDIC

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Federal regulators say the rash of bank failures that are depleting the deposit insurance fund will likely cost about $100 billion over the next four years. To shore up the fund, the FDIC board has voted to require banks to prepay three years worth of premiums. The banking industry is generally supporting the proposal.

STEVE INSKEEP, host:

The Federal Deposit Insurance Corporation is running out of cash in its insurance fund - the one it uses to guarantee bank deposits. So as bank failures mount, the FDIC has an idea for how to replenish the critical funds. It wants banks to prepay billions of dollars that they would normally pay into the fund over the next several years.

NPR's John Ydstie reports.

JOHN YDSTIE: The FDIC has upped its estimate of the cost of bank failures through 2013 to $100 billion. That's going to require a huge replenishment of its insurance fund. It could borrow the whole amount from the Treasury, where it has a $100 billion line of credit. But FDIC chairwoman Sheila Bair has decided not to take that route because of what she says is bailout fatigue. Instead, the FDIC has proposed that banks make an early payment of $45 billion worth of premiums to the fund.

James Chessen, chief economist for the American Bankers Association, says that's a sensible option.

Mr. JAMES CHESSEN (American Bankers Association): The industry has fully supported the FDIC for the last 75 years and paid every dime of its cost, so we think it is an appropriate solution to look to the industry for that financial support.

YDSTIE: To ease the burden, the FDIC will allow banks to expense the prepayment over three years. That way they can avoid a big one time hit to earnings and capital. Chessen says payments of the $45 billion to the FDIC won't significantly affect the industry's ability to make loans. He says banks have over $800 billion in excess reserves on deposit at the Federal Reserve available for lending. It's not being used because the weak economy means there's less demand for loans, he says. But many bank customers who want loans and can't get them say banks are being too cautious.

John Ydstie, NPR News, Washington.

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