The FDIC is seeking public input on a plan to link the insurance premiums levied on banks to the degree of risk-taking. The plan could involve both rewards and penalties for banks. The idea is for institutions deemed to be more of a risk to pay bigger insurance fees.
The number of bank failures is expected to rise this year. The 140 bank failures last year were the highest annual tally since 1992 at the height of the savings and loan crisis. Those 140 failures cost the insurance fund more than $30 billion. The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
Depositors' money, insured up to $250,000 per account, is not at risk and the FDIC is backed by the government. Besides the federal deposit insurance fund, the FDIC has about $21 billion in cash available in reserve to cover losses at failed banks. Also the FDIC mandated banks to prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.
As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions out of the federal deposit insurance fund, which fell into the red last year.
Banks have been especially hurt by failed real estate loans, both residential and commercial. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.
If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these types of loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.
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