U.S. banks give nod to prepaying fees, seek tweaks

* FDIC to vote on prepaid fees in the coming weeks

* Banks large and small approve of prepaying assessments

* Industry seeks adjustments to lessen liquidity impact

By Karey Wutkowski

WASHINGTON, Nov 3 (Reuters) - U.S. banks are lauding regulators for avoiding another emergency fee to replenish the deposit insurance fund, but are suggesting tweaks to a plan for them to prepay three years of regular assessments.

The Federal Deposit Insurance Corp is expected to meet shortly to finalize a proposal that banks pay cash upfront to replenish the depleted fund safeguarding bank deposits.

The proposal would give the agency about $45 billion in cash to deal with the rising cost of bank failures, but banks would not have to book the expense until the fees are regularly due over the three years.

Some of the largest banks are hoping the FDIC might break up the prepayments into chunks and assume that deposits will not grow, meaning the assessment base would be lower, according to comment letters posted on the FDIC's website.

Smaller banks have suggested just prepaying one or two years of assessments, and suggest switching the assessment base to assets from deposits -- a move that would push the burden of the fees onto larger institutions.

The FDIC board is expected to consider the rule in coming weeks, spokesman Andrew Gray said on Tuesday.

"We are in the process of digesting the letters from the comment period, taking into careful consideration the thoughts and issues that have been raised as we prepare the final board case," he said.

The agency proposed in September that banks prepay three years of fees as an alternative to imposing another $5.6 billion emergency fee that could crimp the industry's earnings and lending abilities, or tapping the FDIC's $500 billion line of credit with the Treasury Department.

The $45 billion prepayment, if approved, would give the FDIC more resources to deal with bank failures, which are expected to cost the agency $100 billion through 2013.

Some Republicans have questioned whether the prepayment is an accounting gimmick, but the industry has generally supported the move in letters it has sent to the agency.

State Street Corp (STT.N) said the prepayment approach "represents the least disruptive alternative for both the U.S. banking industry and the economy as a whole."

It also characterized the cost as "substantial," however, and said its own initial cost estimate is $115 million.