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Bank Stocks May Get Hit by FDIC Fees

Bank stocks may suffer as the FDIC raises fees to cope with the steady drumbeat of bank failures.

The

Federal Deposit Insurance Corp.'s

bank insurance fund is being depleted by a steady drumbeat of bank failures, forcing it to assess higher fees to the banks when they can least afford it.

Forty-two U.S. banks and thrifts have

failed

since the start of 2008, including 17 already this year. Combined with the FDIC's decision in October to increase its coverage to accounts up to $250,000, from the previous $100,000, the situation has put a strain on the fund.

The fund totaled $18.9 billion at the end of 2008, declining $15.7 billion in the fourth quarter. As a result, the

FDIC

said it would charge banks up to an extra 20-basis point assessment on deposits, in addition to deposit insurance premiums already being collected, beginning Sept. 30.

At year end, 252 insured institutions made the problem list with combined assets of $159 billion.

As banks filed annual reports this week, a similar theme emerged: The cost of doing business is going up.

Union Bancshares

(UNG) - Get United States Natural Gas Fund LP Report

wrote that it "expects the higher FDIC insurance assessments to unfavorably impact future periods," estimating an additional $1.1 million in 2009 noninterest expenses.

Hawthorn Bancshares

(HWBK) - Get Hawthorn Bancshares, Inc. Report

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and

Farmers National Bank

(FNMB)

also noted in regulatory filings that the fees would impact profitability.

Commonwealth Bancshares

(CWBS)

maintained in its annual report that an increase isn't certain, but noted the challenges the FDIC faces in raising its fees -- indicating it is monitoring the situation.

With national banks like

Citigroup

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and

Bank of America

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in receipt of $45 billion each in federal bailout money and hundreds of billions more in guarantees on shaky assets, many look to

smaller and community banks

as a source of strength that could lead a recovery in the sector.

That recovery could be all the more difficult, as the entire system bears the costs of the sins of its weakest players.