U.S. FDIC plans significant bank premium increase

WASHINGTON (Reuters) - Banks can expect to pay significantly higher premiums for deposit insurance starting next month, the head of the Federal Deposit Insurance Corp said on Tuesday.

"We are going to be raising premiums in early October, not shockingly but significantly," FDIC Chairman Sheila Bair said during a discussion on housing and financial markets.

Bair repeated her view that the Deposit Insurance Fund, which stood at $45 billion at the end of June, has sufficient funds to withstand an expected increase in bank failures.

"I think, actually, the banking sector is holding up pretty well," she said.

The board of the FDIC is slated to meet within weeks to introduce a long-term plan to raise premiums for banks, especially for those that accepted volatile deposits.

The FDIC oversees an industry-funded reserve to insure up to $100,000 per account per depositor and $250,000 per Individual Retirement Account at insured banks.

So far, 12 banks have failed this year. Bair has said repeatedly that the agency will not need to tap into short- and long-term lines of credit with the Treasury Department totaling $70 billion to cover bank failures.

Bair was an early proponent of a systemwide restructuring of troubled mortgages, which is considered by many lawmakers, regulators and financial experts as the root cause of the U.S. financial woes.

Testifying before Congress for the first time since taking over mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N and insurer American International Group Inc (AIG.N), Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on Tuesday urged Congress to act swiftly to put in place a $700 billion bailout for U.S. financial firms, warning delay would put the economy at risk.

"I think the plan is not at all specified at this point," former Treasury Secretary Larry Summers told reporters when asked if the Treasury plan will calm troubled financial markets.

"I think it's constructive for the Treasury to have substantial capacity, but I think it's also very much appropriate during the legislative process that there be a substantially clearer definition of what's to be done," he said.

Bair, after the housing discussion hosted by the Brookings Institution, told reporters the FDIC supports the Treasury plan.

"I think it will help a lot," she said when asked if the plan would help settle the markets. "We're very strongly supportive of Treasury's initiatives. We're talking to them, we're talking to Congress. We think there should be a focus on home loans as well as securities ... how to get home loans restructured as part of this."

The FDIC inherits good and bad assets from a bank after it is shut down by its primary regulator. The agency then tries to turn the assets around in an effort to make them more attractive to potential buyers.

In the case of the failed IndyMac Bancorp Inc IDMC.PK, the agency is modifying some loans to help homeowners stay in their homes and become current on their monthly payments.

Bair said Treasury has sought advise from the FDIC on how to deal with home loans if the financial industry bailout is approved by Congress and includes a home loan component.

"They are looking at us as a consulting role ... and also giving Treasury the latitude to contract with us to dispose of the assets because that's what we do ... with closed banks," Bair said.

(Reporting by John Poirier; editing by John Wallace)