US Banks Prepaying $45B In Insurance Fees

MARCY GORDON

WASHINGTON (AP) — U.S. banks will prepay about $45 billion in premiums to replenish a federal deposit insurance fund now in the red, under a plan adopted Thursday by federal regulators.

The Federal Deposit Insurance Corp. board voted to mandate the early payments of premiums for 2010 through 2012. Amid the struggling economy and rising loan defaults, 120 banks have failed so far this year, costing the insurance fund more than $28 billion.

To address concerns of small banks in weak financial condition, the FDIC also set up an exemption process for those that prove the prepaid fees would be a hardship.

The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.

It is the first time the agency has required prepaid insurance fees. The idea behind it is for banks to spread the costs over three years rather than paying a one-time fee that would deplete their capital reserves.

Unlike a one-time fee, the prepaid premiums won't affect banks' earnings "during these difficult times," FDIC Chairman Sheila Bair said before the vote.