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Originally published Tuesday, October 7, 2008 at 12:00 AM

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FDIC chair seeks fee increase for insurance fund

The head of the FDIC on Tuesday asked for an increase in premiums that will double the average paid by U.S. banks and thrifts next year...

AP Business Writer

WASHINGTON — The head of the FDIC on Tuesday asked for an increase in premiums that will double the average paid by U.S. banks and thrifts next year to replenish the deposit insurance fund.

Federal Deposit Insurance Corp. Chairman Sheila Bair made the proposal — which would raise the average insurance premiums paid by banks and thrifts to 13.5 percent of the value of their insured deposits from the current 6.3 percent — at a meeting of the agency's board.

For institutions deemed to be in strong financial condition — 91 percent of all insured banks and thrifts — the average rate would be 11.6 percent.

The plan calls for higher-risk institutions to pay bigger insurance fees than others. It is based on a projected $40 billion loss to the insurance fund from bank failures through 2013, and would reduce the industry's average pretax income by 5.6 percent next year, according to FDIC estimates.

The FDIC has been working on the plan since July, before the account insurance limit was raised to $250,000 from $100,000, in the $700 billion federal bailout legislation enacted on Friday. The increases proposed Tuesday will cover only up to the previous insured $100,000 limit per account.

The plan would take effect in two stages, with an initial set of increases coming in the first quarter and additional rises in the second quarter starting in April.

The deposit insurance fund is now at $45.2 billion — below the minimum target level set by Congress and the lowest it has been since 2003.

The FDIC's projection of $40 billion in losses to the fund through 2013 includes the $8.9 billion loss from the July failure of big thrift IndyMac Bank.

Bair promised Monday there will be no cost to taxpayers if the agency needs to borrow from Treasury to cover the new increase in the federal deposit insurance limit to $250,000. The insurance fund's potential liability has increased with the rise in the insurance ceiling through the end of 2009.

The bailout legislation also gives the FDIC unlimited temporary authority to borrow from the Treasury if needed to cover the new insurance limit.

Copyright © 2008 The Seattle Times Company

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