U.S. eyes higher premiums to replenish bank fund

WASHINGTON (Reuters) - Banks holding volatile deposits gathered by third parties may be charged higher premiums to bolster the fund used to insure deposits at failed banks, the head of the Federal Deposit Insurance Corp said on Friday.

“I think that is something we need to factor into our premiums and charge higher premiums to banks that fit that profile,” FDIC Chairman Sheila Bair said in an interview with C-SPAN television.

Bair said brokered deposits at IndyMac IDMC.PK, seized by the FDIC a week ago, were a big factor driving up the cost to the fund that insures up to $100,000 per deposit and up to $250,000 per retirement account at insured banks.

The FDIC expects the third largest bank failure in U.S. history to deplete the $53 billion fund by between $4 billion and $8 billion.

“Again, overwhelmingly, banks are safe and sound and healthy,” so I think the industry will be able to absorb the additional needs to keep those reserves strong, she said.

Brokered deposits are short-term deposits accepted by banks to fund lending activity. But the deposits are considered volatile because investors chasing high returns can withdraw the money and move it to another institution.

Well-capitalized banks are free to take such deposits, while those classified as adequately-capitalized need the FDIC’s permission. Undercapitalized institutions are prohibited from accepting brokered deposits.

In the taped interview, to be aired on Sunday, Bair said the FDIC board, which includes the head of the Office of Comptroller of the Currency and Office of Thrift Supervision, will meet in September to weigh how to replenish the deposit insurance fund.

“We always hate to raise premiums but I think it’s probably likely we will have to do that but... hopefully not so severely,” she said.

With more banks expected to fail as delinquent loans rise in a weak U.S. economy, the FDIC has been beefing up its staff to handle the takeover of failed institutions, including hiring contractors and former FDIC employees.

Bair also said IndyMac was on the FDIC’s list of problem banks in the second quarter, but she did not elaborate if the number had grown beyond the 90 banks mentioned at the end of the first quarter. The FDIC is expected to give an updated number in August.

After the IndyMac failure there were reports of depositors withdrawing their money from other banks and some websites urged readers to close their accounts.

Bair said the FDIC needs to stay ahead of misinformation littering the Internet and is launching a public education blitz next week that includes a depositors’ “bill of rights,” to get the message out that insured deposits are safe.

Looking to temper any concerns about the insurance fund, Bair said it is backed by the U.S. government and has a $40 billion line of credit with the U.S. Treasury Department.

“I would be very surprised if we ever got to that stage,” she said.

Reporting by John Poirier; Editing by Tim Dobbyn