In another possible move to replenish a severely depleted deposit insurance fund; The Federal Deposit Insurance Corporation is considering asking member banks to pre-pay $36 billion in fees in order to boost the funds reserves, according to recent reports. The option is expected to be brought up for discussion at an FDIC meeting on Tuesday.
The FDIC has explored several options in recent months to raise funds for the deposit fund along with interest in the purchase of failed banks. Recently, the equity ratio requirements were adjusted in order to entice private equity firms to invest in the assets of failed banks.
If the agency were to implement a prepaid fee structure for its insurance coverage, it would be the first time in the agency’s history. Potential terms of the plan would call pre-payment of fees for 2010 through 2012, which would raise about $12 billion for each year.
Institutional Risk Analytics, a bank-analyst service reported a staggering statistic: Estimated losses for failed bank resolutions by the FDIC are running around a quarter of failed bank assets, a level much higher than between 1980 and 1995, when failures cost an average 11 percent.
The 1980’s was the last period the U.S. economy saw a climatic failure of banks stemming from the savings and loan crisis. With costs to the FDIC running on average twice more per bank now, the insurance deposit fund faces enormous pressure, even with a large influx of cash.
Expectations are for over 1,000 banks to either fold or be taken over during the current cycle, according to some bank industry analysts.
Thus far in 2009, a total of 95 banks have failed across the country, compared with 25 for all of 2008.
Furthermore, total loans and leases held by all FDIC-insured banks was some $7.7 trillion as of Q2 2009, the IMF estimate implies a cumulative loss of over $300 billion. The figures do not bode well for the banking industry on a whole.
