FDIC Pushes Banks To Prepay Assessments

The Federal Deposit Insurance Corp.'s (FDIC) board of directors has adopted a notice of proposed rulemaking that would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012.

Prepaid assessments, which would total about $5 billion, would allow the industry to strengthen the cash position of the deposit insurance fund (DIF), the FDIC says. The fund has been hammered by 95 bank failures this year.

According to the notice of proposed rulemaking, the pace of bank resolutions is putting downward pressure on the DIF's cash balances. "While the less liquid assets in the DIF have value that will eventually be
converted to cash when sold, the FDIC's immediate need is for more liquid assets to fund near-term failures," the notice says.

‘The decision today is really about how and when the industry fulfills its obligation to the insurance fund," says FDIC Chair Sheila Bair. "It's clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem."

The FDIC board also voted to adopt a uniform three-basis-point increase in assessment rates, effective Jan. 1, 2011, and extend the restoration period from seven to eight years.

According to its analysis, the FDIC says prepaid assessments are "much less likely" to impair bank lending than a one-time special assessment.

Public comments are due 30 days after publication in the Federal Register.



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