FDIC Orders Banks to Prepay $45 Billion to Build Fund (Update1)

[FarCenter]

By Alison Vekshin

Nov. 12 (Bloomberg) -- U.S. lenders will prepay three years of premiums to replenish the government’s deposit insurance fund drained by the fastest pace of bank failures in 17 years, the Federal Deposit Insurance Corp. decided today.

The FDIC board approved the payments today at a Washington meeting to raise an estimated $45 billion for the fund that slipped into a deficit at the end of the third quarter. Banks had backed the prepayments over special assessments to bolster the fund as the U.S. closed 120 lenders this year.

The action satisfies the deposit fund’s “need for liquidity without imposing undue burden on the industry,” FDIC Chairman Sheila Bair said at the meeting.

A surge in failures has pushed the industry-supported fund into a deficit for the first time since 1991, according to agency estimates. The FDIC had set aside $32 billion for 2009 failures expected through June 30, and estimates bank failures through 2013 will cost $100 billion.

<SNIP>http://www.bloomberg.com/apps/news?pid=20601208&sid=a4D2fp02SSn8

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This should cover a few months more of bank failures.

Actually, the FDIC is probably in worse shape than they are letting on, since when a bank fails, the FDIC takes over the bad loans or enters into loss sharing agreements that allow the FDIC to not recognize all of the losses immediately.