FDIC to Raise Fees Charged to Lenders

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http://online.wsj.com/article/SB1235761491...=googlenews_wsj

WASHINGTON -- In an effort to deal with greater-than-expected losses from bank failures, U.S. regulators are moving quickly to restore the consumer safety net for bank accounts by sharply raising the fees they collect from banks for deposit insurance.

The Federal Deposit Insurance Corp.'s board on Friday approved a proposal from staff to charge banks a one-time fee of 20 cents on every $100 of domestic deposits, as well as give the agency the power to collect other emergency fees in the future. Those charges would be combined with a general increase in the amount banks pay each quarter for the government to back deposits in U.S. bank accounts.

Combined, the FDIC said the new fees could raise $27 billion for the deposit insurance fund in 2009, nine times what the agency collected last year.

Opposition to the proposal came from John Reich, the departed director of the Office of Thrift Supervision. Mr. Reich, who stepped down from his post on Friday, said he didn't think it appropriate to levy a new tax on banks that are already in a weakened condition. He said he would support higher fees in more profitable times.

Describing the need for the changes, the FDIC staff said "a deepening recession and continued severe problems in the housing and construction sectors, financial markets and commercial real estate, contribute to staff's expectations [of] significantly higher losses for the insurance fund."

The fee change comes a day after the FDIC disclosed that U.S. banks finished the last three months of 2008 by reporting the worst results since the middle of the savings-and-loan crisis. This included a sharp increase in the number of banks on the FDIC's "problem list" and the deposit-insurance fund -- which protects consumers' bank accounts -- nearly being cut in half by losses from bank failures.

The FDIC staff said Friday that it had raised the FDIC's expectation for the likely costs from future bank failures over the next five years. Officials now expect losses to reach $65 billion over the next five years after recording $18 billion in losses during 2008.

FDIC Vice Chairman Martin Gruenberg said the expected losses mean the deposit insurance fund could fall to zero this year if regulators don't act.

The plan will give the FDIC seven years to boost the health of the deposit-insurance fund, rather than the five it had originally settled on last year. The longer horizon will give the agency more time to collect additional fees from banks for protecting consumer bank accounts.

Write to Michael R. Crittenden at michael.crittenden@dowjones.com

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Who will ultimately pay these fees?