FDIC Proposes Doubling Insurance Premiums For Deposits

October 8, 2008 10:29 a.m. EST

Washington, D.C. (AHN) - In anticipation of more lenders failing until 2013, the Federal Deposit Insurance Corporation proposed Tuesday to double the premium it charges banks for deposit insurance.

If the FDIC proposal would push through, it would cut the pre-tax income of banks by about 5.6 percent, while it will boost the FDIC's insurance fund by $10 billion yearly. With the added funds, the FDIC would have $45.2 billion by the end of the second quarter.

The agency currently covers $4.5 trillion of U.S. deposits, but the one-year increase of deposit insurance maximum to $250,000 from $100,000 would require a bigger coverage fund for FDIC.

FDIC Chairman Sheila Bair said at a meeting at the agency's office, "The industry understands the need to do this, and understands the need from a public-confidence perspective that the banking industry stands behind the fund."

FDIC's reserve was eaten up by the collapse of 13 banks in 2008, which led to a 14 percent reduction of its reserve level. The proposal to double insurance premiums from banks will be open to public comment for a month. By December the FDIC plans to issue the final rules on hiked premiums.