- The Washington Times - Saturday, March 7, 2009

The head of the Federal Deposit Insurance Corp. has agreed to halve a new emergency fee on U.S. banks in exchange for Congress more than tripling the agency’s borrowing authority to tap federal aid if needed to replenish the deposit insurance fund.

Word of the move by FDIC Chairman Sheila Bair came Thursday, four days after she warned that the fund insuring Americans’ deposits could be wiped out this year without the new fees on U.S. banks and thrifts. Banks, especially smaller community banks, have been chafing over the new insurance fees, saying they will place an extra burden on an already struggling industry.

Ms. Bair is agreeing to cut the new emergency premium, to be collected from all federally-insured institutions on Sept. 30, to 10 cents for every $100 of their insured deposits from the 20 cents the FDIC approved last month. That compares with an average premium of 6.3 cents paid by banks and thrifts last year.

At the same time, the FDIC has been seeking a permanent increase in its line of credit with the Treasury Department to $100 billion from the current $30 billion. The agency has never drawn on that long-term credit line, but Ms. Bair told lawmakers in letters Thursday that such an increase “would leave no doubt that the FDIC will have the resources necessary to address future contingencies and seamlessly fulfill the government’s commitment to protect insured depositors against loss.”

FDIC spokesman Andrew Gray said the idea behind increasing the credit line is to give the agency additional flexibility in funding, and is unrelated to its ability to meet obligations to bank depositors.

The FDIC is “backed by the full faith and credit of the United States government,” Mr. Gray said. “We can and always will be able to meet our obligations to depositors.”

In addition to $18.9 billion now in the insurance fund, the FDIC also has a contingency reserve of $22.4 billion set aside for potential bank failures this year.

Housing rescue legislation approved by the House on Thursday includes the boosted borrowing authority for the FDIC. The package faces a tougher road in the Senate amid the same banking industry opposition and reservations among moderate Democrats that nearly derailed it in the House.

Looking to enhance those prospects in the Senate for the expanded FDIC borrowing authority, Banking Committee Chairman Sen. Christopher J. Dodd, Connecticut Democrat, has authored specific legislation. He was expected to soon introduce the measure, which also would provide a temporary increase in the FDIC’s credit line to as much as $500 billion until Dec. 31, 2010 - with required approval of the Federal Reserve, the Treasury Department and other federal regulators.

In a letter to Mr. Dodd Thursday, Ms. Bair said raising the permanent credit line to $100 billion “would give the FDIC flexibility to reduce the size” of the emergency premium to be charged to banks.

Dodd spokeswoman Kate Szostak declined to comment.

The twin moves “are important for maintaining a strong deposit insurance fund while also ensuring that banks can continue to meet the credit needs of their communities,” said Edward Yingling, president and CEO of the American Bankers Association.

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