- The Washington Times - Saturday, May 23, 2009

Federal regulators on Friday adopted a new system of special fees paid by U.S. financial institutions that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.

The move by the Federal Deposit Insurance Corp. cut by about two-thirds the amount of special fees to be levied on banks and thrifts. It followed protests by small and community banks - with powerful allies in Congress - against a plan adopted in February that charged premiums based on the amount of deposits. The smaller institutions insisted they would be unfairly hit even though they didn’t contribute to the financial crisis with reckless lending.

The FDIC board voted 4-1 to approve the new fee system. It is intended to raise $5.6 billion in the face of a cascade of bank failures that have depleted the insurance fund. The lone dissent came from U.S. Comptroller of the Currency John Dugan, whose agency regulates national banks.

Additional emergency assessments could come later in the year. FDIC Chairman Sheila Bair said “there’s a good probability” that another would be needed in the fourth quarter, though it wouldn’t take effect without a public comment period.

The FDIC now expects bank failures will cost the bank insurance fund around $70 billion through 2013, up from a previous assessment of around $65 billion. The fund now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

“There will be some shifting of the burden” to major banks, Ms. Bair said. “The shift is not huge to them. We’re asking them to pay more.”

Congress this week more than tripled the amount the FDIC could borrow from the Treasury Department if needed to restore the insurance fund. Ms. Bair had earlier promised a reduction in fees charged to banks if that credit line could be expanded.

The FDIC also recently levied a surcharge on banks issuing debt under the agency’s temporary rescue program. Under it, the FDIC guarantees hundreds of billions of dollars in debt in the event of payment defaults by the issuing banks. Those surcharges, nearly $8 billion collected already, will help compensate for the reduction in insurance premiums, the agency said.

The seizure Thursday of struggling Florida thrift BankUnited FSB is expected to cost the insurance fund $4.9 billion, the second-largest hit since the financial crisis began. The costliest was last year’s seizure of California lender IndyMac Bank, on which the insurance fund is estimated to have lost $10.7 billion. BankUnited FSB, based in Coral Gables, Fla., was the 34th federally insured institution to be closed this year.

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