WASHINGTON – The head of the Federal Deposit Insurance Corp. has warned that the fund insuring Americans' bank deposits could be wiped out this year without the money the agency is seeking in new fees from U.S. banks and thrifts.

FDIC Chairman Sheila Bair acknowledged, in a letter to bank CEOs, that the new increased fees and hefty emergency premium the agency voted to levy last week will bring a "significant expense" to banks, especially amid a recession and financial crisis when their earnings are under pressure.

"We also recognize that assessments reduce the funds that banks can lend in their communities to help revitalize the economy," Bair wrote.

But given the accelerating bank failures that have been depleting the deposit insurance fund, she said, it "could become insolvent this year."

"Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative," Bair wrote in the letter dated Monday to the chief executives of the nation's 8,305 federally insured banks and thrifts.

The industry, especially smaller community banks, has said the new insurance fees will place an extra burden on an already struggling sector. A federal banking regulator said last week the new premiums will unfairly burden smaller banks that didn't contribute to the financial crisis with reckless lending.

As loan defaults have soared, reflecting the ravages of rising unemployment and sliding home prices, bank failures have cascaded and sapped billions out of the fund that insures regular accounts up to $250,000. The fund now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

The FDIC now expects that bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. There have been 16 bank collapses already this year, following 25 in 2008 — which included two of the biggest savings and loans, Washington Mutual Inc. and IndyMac Bank.

The new insurance fees are meant to raise $27 billion this year to replenish the fund.

Bair said the plan protects bank depositors as well as taxpayers, because it likely means the FDIC won't have to go to the Treasury Department and tap public money to replenish the insurance fund.

Bair has not ruled out that possibility for a short-term loan, but said she doesn't expect to take the more drastic action of using its $30 billion long-term credit line with Treasury — something that has never been done.

"Some have suggested that we should turn to taxpayers for funding," she said in her letter to the bank executives. "But banks — not taxpayers — are expected to fund the system, and I believe Congress would look skeptically on such a course of action."

Furthermore, she said, turning to taxpayers "could open up a whole new debate about the degree of government involvement in the affairs of insured banks."

The FDIC plan puts new charges on a battered industry while the Obama administration is seeking to pump as much as $750 billion in additional federal aid into ailing banks under its financial rescue plan. The FDIC, as a regulatory agency charged with protecting the insurance fund, acts independently from the administration.

The new emergency premium, to be collected from all federally insured institutions on Sept. 30, will be 20 cents for every $100 of their insured deposits. That compares with an average premium of 6.3 cents paid by banks and thrifts last year.

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

Thu Mar 5, 1:20 pm ET

FDIC warns US bank deposit insurance fund could tank

WASHINGTON (AFP) – The US government is warning banks that its deposit insurance fund could go broke this year as bank failures mount. 

The head of the Federal Deposit Insurance Corporation, Sheila Bair, in a letter to bank chief executives dated March 2, defended the FDIC's plan to raise fees on banks and assess an emergency fee to shore up the fund and maintain investor confidence.  Bair acknowledged the new fees, announced Friday, would put additional pressure on banks at time of financial crisis and a deepening recession, but insisted they were critical to keep the insurance fund solvent and protect.

"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote.

The FDIC chief said in the letter that the rapidly deteriorating economic conditions raised the prospects of "a large number" of bank failures through 2010.

"Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative," she wrote.

The FDIC last Friday announced it would impose a temporary emergency fee on lenders and raise its regular assessments to shore up the rapidly depleting deposit insurance fund that insures individual customer deposits up to 250,000 dollars.

A week ago the FDIC reported a sharp depletion of the deposit insurance fund in the fourth quarter due to actual and anticipated bank failures, to 19 billion dollars from 34.6 billion in the third quarter.

The FDIC said it had set aside an additional 22 billion dollars for estimated losses on failures anticipated in 2009.

For the best account of the Federal Reserve  (http://www.freedocumentaries.org/film.php?id=214).  One cannot understand U.S. politics, U.S. foreign policy, or the world-wide economic crisis unless one understands the role of the Federal Reserve Bank and its role in the financialization phenomena.  The same sort of national-banking relationships as in our country also exists in Japan and most of Europe.