FDIC Wants Depositories to Prepay $45B in Upfront Premiums

Banks and thrifts will front the Federal Deposit Insurance Corp. $45 billion in advance deposit insurance premiums under a new proposal designed to bolster the beleaguered insurance fund. The public will have 30 days to comment on the proposal which requires FDIC-insured institutions to prepay quarterly insurance assessments for the fourth quarter of 2009, all of 2010, 2011 and 2012. If adopted, FDIC would get an immediate cash infusion but the banks would be able to list the "pre-paid FDIC expenses" as an asset on their balance sheets that would be reduced each quarter as the assessments come due. "At this critical time, when the economy is just beginning its recovery, looking for options that are less pro-cyclical and that spread the cost over time, this is the right policy," said James Chessen, chief economist for the American Bankers Association. After the failure of 95 banks this year, the FDIC's cash reserves have declined so much that the agency will have to tap the Treasury Department for a line of credit or continue to charge special assessments to keep the fund above water. "In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer," said FDIC chairman Sheila Bair.