FDIC to boost insurance fund

With balance on fund that guarantees bank deposits at its lowest level since 1995, FDIC plans to charge riskier banks higher fees to increase reserves.

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By Tami Luhby, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The recent failure of IndyMac has sent the FDIC's insurance fund balance to its lowest levels since 1995. This is forcing the regulator to boost its reserves by increasing the fees banks pay.

The Deposit Insurance Fund balance fell to $45.2 billion at the end of June, down from $52.8 billion three months earlier, according to the FDIC's quarterly bank report, released Tuesday.

The drop is due primarily to the FDIC setting aside $10.2 billion in additional provisions for insurance losses for recent bank failures.

The July failure of IndyMac, one of the nation's largest mortgage lenders, is estimated to cost the agency about $9 billion, the FDIC said.

The decline caused the reserve ratio to fall to 1.01%, down from 1.19% at the end of the previous quarter.

The Federal Deposit Insurance Corp., which guarantees bank customers' deposits up to $100,000, is required by law to maintain a reserve ratio of no less than 1.15%.

So the regulator will consider a plan in October to boost its balance within five years by charging the banks higher premiums. It plans to change its system to assess riskier banks even higher fees.

"We'll be fine-tuning assessments so higher risk activity will result in significantly higher premiums," said Sheila Bair, the FDIC's chairman. "I should say it will be enough to impact behavior."

Despite the drain on the FDIC's reserves, consumers don't have to worry that the agency won't be there to back them up, said Craig Colasono, associate director at Sandler O'Neill. But banks that are already facing hurdles could find it tough to ante up more in premiums.

"It could present a challenge for troubled institutions," he said. To top of page

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