Bair says FDIC has enough money but wants cushion

WASHINGTON (Reuters) - Sheila Bair, head of the U.S. Federal Deposit Insurance Corp, said on Monday more banks would fail this year but the agency had enough money to do its job, even as it seeks to boost its reserves.

While Bair would not speculate on the number of banks that may close in the next 12 months and declined to comment on any specific banks, she said the number “will continue to go up.”

“But we’ve been preparing for this for some time, so it’s well within our capacity to handle,” she told the CBS’s “The Early Show.”

Bair said the FDIC had enough money in its industry-funded reserves and was fully backed by the U.S. government.

“The money will always be there,” she said. “We can’t run out of money.”

The FDIC has set aside $22 billion to cover losses projected over the next 12 months and after that will have $19 billion left, but “would like a bigger cushion,” she said.

“We would like to prepare for all contingencies. So we are increasing our reserves, our assessments to bolster our reserves some more,” Bair said.

Banks are facing regular fee increases -- in addition to the special assessment -- to help replenish the FDIC’s insurance fund, which has been drained by rising bank failures.

The banking industry has said the special fee comes when the sector can least afford it.

Senator Christopher Dodd, the Democratic chairman of the Senate Banking Committee, plans to introduce legislation that would more than triple -- to $100 billion -- the FDIC’s line of credit with the Treasury Department.

Bair said closing small banks and transferring their assets to stronger companies had a “cleansing effect” on the economy” and helped to facilitate lending.

But there were “practical difficulties” in letting large, diversified financial groups fail, she said.

Editing by Jackie Frank