FDIC Will Require Banks to Pay|3 Years of Insurance in Advance

     WASHINGTON (CN) – Amid awave of bank closures, the Federal Deposit Insurance Corporation will require insured institutions to pay the next three years of their insurance assessments in advance. The move is meant to shore up rapidly dwindling cash reserves of the Deposit Insurance Fund and to reassure the public that insured deposits are safe.




     The FDIC estimates that it will collect $45 billion from prepaid assessments. The payments will come from the banking industry’s substantial liquid reserve balances, which as of June 30 totaled more than $1.3 trillion – 22 percent more than a year ago.
     Payment of the prepaid assessment, along with the institutions’ regular third quarter assessment, will be due on Dec. 30.
     The FDIC adopted an Amended Restoration Plan on Sept. 29 to bring the Fund back to a reserve ratio of 1.15 percent within 8 years.
     Although total assets in the fund had increased to almost $63 billion at the time the Restoration Plan was adopted, cash and marketable securities had fallen to approximately $23 billion.
     Even though most of the less-liquid securities will be converted to cash when sold, the pace of bank failures continues to put downward pressure on the fund’s cash balance and the FDIC believes it is in immediate need of liquid assets to fund near-term failures.
     As of last week, 120 FDIC insured banks have failed this year; the most recent was the United Commercial Bank, San Francisco, which was merged into the East West Bank, Pasadena. That transaction cost the Fund $1.4 billion.
     

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