FDIC to meet Sept. 29 on rebuilding insurance fund

September 23, 2009

Federal Deposit and Insurance Corporation (FDIC) Chairman Sheila Bair WASHINGTON, Sept 23 (Reuters) – U.S. regulators will meet next week to discuss how to rebuild the deposit insurance fund, which has been depleted by a sharp increase in bank failures, the Federal Deposit Insurance Corp said in an agenda notice on Wednesday.

The FDIC’s board is expected to propose on Sept, 29 and put out for public comment a number of options to replenish the fund, including tapping the agency’s $500 billion line of credit with the Treasury, levying additional emergency fees on banks, encouraging banks to prepay their regular assessments, and possibly borrowing from healthier banks.

FDIC Chairman Sheila Bair has said that all options are on the table and that the agency will seek feedback from the industry before making a final decision.

Barney Frank, chairman of the House Financial Services Committee, said on Wednesday that he prefers the FDIC tap its Treasury line of credit instead of borrowing from banks, many of which received government money under the Troubled Asset Relief Program.

“My preference would be that they borrow from the Treasury,” Frank told reporters. “As somebody noted, it’s going to look odd if they’re borrowing TARP money back from the banks.”

Bair told a hearing of Frank’s commttee that agency officials “understand the stress” that another special assessment on banks would create and that it is looking at other options to replenish its deposit insurance fund.

She said the FDIC is now looking at how it might use the Public Private Partnership Investment Program, a toxic assets program, for open banks that are struggling but still viable and have valuable franchises.

The board meeting next week will also provide an update of the agency’s expectations for the volume of bank failures that may still be looming.

In May, the FDIC projected a loss of $70 billion for the insurance fund over the next five years, up from a prior forecast of $65 billion.

So far this year, 94 U.S. banks have failed, compared with 25 during all of last year and only three in 2007.

Those failures whittled the balance of the insurance fund down to $10.4 billion at the end of the second quarter, from $45 billion a year earlier. The FDIC is careful to mention that it has an additional $32 billion in reserves to handle failures over the next year.

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