FDIC chief considers tapping Treasury for funds

The chairman of the Federal Deposit Insurance Corp. says she is "considering all options, including borrowing from Treasury," to replenish the dwindling fund that insures bank deposits.

"I never say never," FDIC Chairman Sheila Bair told an audience at Georgetown University Friday.

Bair's remarks go beyond what she said just three weeks ago when asked about tapping the Treasury after the fund that insures regular deposit accounts up to $250,000 hit its lowest point since 1992, at the height of the savings-and-loan crisis. "Not at this point in time," she said on Aug. 27.

The FDIC estimates bank failures will cost the fund around $70 billion through 2013. Ninety-two banks have failed so far this year. Hundreds more are expected to fall in coming years largely because of souring loans for commercial real estate.

The FDIC's fund has slipped to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent. The $10.4 billion in the fund at the end of June is down from $13 billion at the end of March, and $45.2 billion in the second quarter of 2008.

The FDIC board will meet at the end of the month and will likely put out several options, Bair said Friday, including tapping a Treasury credit line, assessing fees on banks in advance and again increasing the fees that banks must pay.

"We don't want to stress the industry too much at this time, when they're still in the process of recovery," she said.

Congress in May more than tripled the amount the FDIC could borrow from the Treasury if needed to restore the insurance fund, to $100 billion from $30 billion.

The FDIC then adopted a new system of special fees paid by U.S. financial institutions that shifted more of the burden to bigger banks to help replenish the insurance fund. The move cut by about two-thirds the amount of special fees to be levied on banks and thrifts compared with an earlier plan, which had prompted a wave of protests by small and community banks.

Bair had earlier promised a reduction in fees charged to banks if the Treasury credit line could be expanded.

The FDIC emergency premium, to be collected from all federally-insured institutions, is 5 cents for every $100 of a bank's assets minus its so-called Tier 1, or regulatory capital, as of June 30. Banks and thrifts paid an average premium of 6.3 cents last year. A measure of a bank's health, Tier 1 capital includes common and preferred stock as well as intangible assets such as tax losses that can be used to reduce future earnings.

In addition, the FDIC raised the regular insurance premiums for banks to between 12 and 16 cents for every $100 in deposits starting in April, from a range of 12 to 14 cents.

On Friday, Bair also said the financial regulatory system should be restructured with the goal of stopping banks from becoming too big to fail and leaving taxpayers on the hook.

Risks to the broader financial system should be overseen by a strong, independent council of regulators including the FDIC, Securities and Exchange Commission and others, she said.

The council should be accountable, politically independent, and have the power to make rules, Bair said. That would make it more robust than a council the Obama administration has proposed, which would have only advisory powers.

The administration wants to give more power to the Federal Reserve. Some senators on the Senate Banking Committee are reluctant to expand the Fed's powers, and are proposing a council similar to what Bair advocates.