FDIC Moves to Recoup Massive Drain of $35B

     WASHINGTON (CN) – Banks may need to pay dues early after a vote taken Tuesday on how to replenish deposit insurance funds that have been drawn down from $45 billion to the current amount of $10 billion as the result of a wave of bank failures.

     If the rule proposed by board members of the Federal Deposit Insurance Corporation is adopted, banks will have to pay quarterly assessments in advance for the fourth quarter of 2009, and for the three years following.
     The proposal would allow the FDIC to raise funds in the short term to handle bank failures expected to continue into 2010.
     Over the course of a year, the value of the fund fell from $45 billion to $10.4 billion.
     This year, 95 banks have failed, many more than the 25 that failed in 2008, or the three that failed in 2007.
     While the FDIC has significant reserves, it is has been seeking ways to recapture lost capital.
     Several other options have been considered.
     One involved the imposition on banks of a cumulative $5.6 billion emergency fee. It would have likely imposed additional fees in later quarters. But some have expressed worry that more fees could lead to more bank failures.
      The FDIC also has a $500 billion line of credit with the Treasury, but there have been different views on how the public would perceive this.
     House Financial Services Committee Chair Barney Frank said it would look odd if the corporation is borrowing Troubled Asset Relief Program funds back from the banks.
     FDIC Chair Sheila Bair said it would be better not to borrow from the taxpayers.
     The organization has also considered, although to a lesser degree, borrowing from healthy banks. Banks would be obliged to comply. The interest that the FDIC would need to pay would be established by the Treasury Department.
     Before the proposed rule is adopted, it will be subject to public comment.

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