With the 80th bank failure occurring in just the first eight months of 2009, the U.S. banking industry’s fee burden from the FDIC is continuing to be pressured as the Deposit Insurance Fund shrinks. Richard Bove, an analyst with Rochdale Securities, told Reuters in a report that the FDIC’s Insurance Fund may need to collect an amount that would equate to about 25 percent of U.S. bank industry pretax income in 2010 to stay afloat.
In the report Bove predicted another 150 to 200 additional U.S. banks failures before the current banking crisis ends. The FDIC will likely use special assessments against banks in order to raise the extra funds needed to secure the Deposit Insurance Fund’s integrity. Bove believes special assessments in 2010 could reach $11 billion in addition to the regular fees banks already pay.
The FDIC last levied a special assessment in the second quarter of five basis points on each FDIC-insured bank’s assets. The assessment is scheduled for collection on September 30.
The Deposit Insurance Fund ended the first quarter of the year with a balance of roughly $13 billion. Since that time the FDIC has had to digest several large bank failures, such as Colonial BancGroup, which cost the fund about $4 billion.
The Deposit Insurance Fund holds a fraction of the $52 billion it had just a year ago, raising the odds of an upcoming special assessment to near certainty.
As seen recently on americanbankingnews.com, the FDIC is exploring its options for brining in investors to buy-up failed banks, thus easing the burden on the insurance fund. Investment from private equity firms has been the showcased proposal so far. The FDIC is set to vote August 26 on a relaxed set of guidelines that would entice private equity firms to invest in failed banks.
