Federal regulators on Friday adopted a new system of special fees paid by U.S. financial institutions that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.
The Federal Deposit Insurance Corp.'s board voted 4-1 to approve the new fee system. It is intended to raise $5.6 billion in the face of a cascade of bank failures that have depleted the insurance fund. The lone dissent came from U.S. Comptroller of the Currency John Dugan, whose agency regulates national banks.
The FDIC now expects bank failures will cost the fund around $70 billion through 2013, up from a previous assessment of around $65 billion.
"There will be some shifting of the burden" to major banks, FDIC Chairman Sheila Bair said. "The shift is not huge to them. We're asking them to pay more."
The seizure Thursday of struggling Florida thrift BankUnited FSB is expected to cost the insurance fund $4.9 billion, the second-largest hit since the financial crisis began. The costliest was last year's seizure of California lender IndyMac Bank, on which the insurance fund is estimated to have lost $10.7 billion. Coral Gables, Fla.-based BankUnited FSB was the 34th federally insured institution to be closed this year.
The new FDIC emergency premium, to be collected from all federally-insured institutions, will be 5 cents for every $100 of a bank's assets minus its so-called Tier 1, or regulatory capital, as of June 30. The FDIC's previous planned fee was 20 cents per $100 of a bank's insured deposits. A measure of a bank's health, Tier 1 capital includes common and preferred stock as well as intangible assets such as tax losses that can be used to reduce future earnings.
Because larger financial institutions tend to rely more heavily on funding from sources other than deposits, bigger banks would end up paying a heftier portion of the new assessment. FDIC officials estimated that of the $5.6 billion the agency is seeking to raise, as much as $500 million that would have been paid by smaller banks under the previous plan now could be absorbed by larger ones.
The FDIC plan adopted in February elicited a storm of protest from smaller and community banks — with powerful allies in Congress — which insisted they would be unfairly burdened even though they didn't contribute to the financial crisis with reckless lending.
Bair then agreed to cut the emergency fee in exchange for Congress more than tripling the FDIC's borrowing authority to tap federal aid if needed to replenish the insurance fund. Legislation passed by Congress this week boosted that authority to borrow from the Treasury Department, to $100 billion from $30 billion.
"We will only borrow in an emergency," Bair said Friday. "We'll keep it as a backstop."
