FDIC Considering One Time Fee on Banks to Increase Deposit Insurance Fund

The FDIC is recommending a one time emergency assessment on member banks to help replenish the rapidly depleting FDIC insurance fund.

Bloomberg reports that:

"FDIC staff members at a board meeting today in Washington will recommend charging banks an “emergency special assessment” in response to an estimate that bank failures could cost the fund $65 billion through 2013, according to a memo outlining the proposal. The added fees are projected to generate $27 billion this year, compared with the $3 billion raised in 2008, the FDIC said"

The FDIC insurance fund has fallen from $34.6 billion in the third quarter of 2008 to $18.9 billion in the last three months. That's not going to cover all of the anticipated bank failures.

The emergency fee would be $.20 per $100 in insured deposits. The FDIC is also considering changing the amount it assesses on a regular basis from $.07 per $100 in deposits to $.12 to $.14 per $100 deposits.

Banks are charged for FDIC insurance on a quarterly basis and their rate depends on their risk weighing, which takes into effect their capital, their funding sources, and their assets. The size of the bank and the score they receive on this risk assessment determine how much is required to be paid in.

To put the fee into perspective, a medium sized bank with $1 billion in deposits would pay an additional $2,000,000 per year because of this assessment. That's not an insignificant amount and is one more demonstration of why the financial system is in for a rough time. The losses we are experiencing today are going to have an impact on bank profitability well into the future.

Whie this is bad news for bank shareholders, it is a positive to depositors and the general, who can rest easy knowing the insurance fund that backs their account will remain solvent without government support - for now.