U.S. banks to prepay fees to cover failure costs

By Karey Wutkowski

WASHINGTON (Reuters) - U.S. banks will prepay three years of industry fees to give the government about $45 billion in cash to handle the rising tide of bank failures, under a rule finalized by the Federal Deposit Insurance Corp on Thursday.

The industry has generally spoken favorably of the approach because banks would pay the cash upfront but would not have to book the expense until the assessments came due over the three years.

The FDIC would not be able to use the money to bring up the balance of the insurance fund that safeguards bank deposits, but it would have operating liquidity.

U.S. banks that offer insured deposit accounts must pay quarterly fees that are a risk-based percentage of their domestic deposits.

The prepayment has been described as an alternative to imposing another hefty emergency fee on the still-recovering industry, or having the FDIC tap its line of credit with the Treasury Department.

"Many institutions are only beginning to recover," said FDIC Chairman Sheila Bair.

The deposit insurance fund went into the red at the end of the third quarter due to the highest annual level of bank failures since 1992.

The FDIC estimates that its cash needs would have outstripped its resources in the first quarter of next year if it had not acted to gain more immediate funds.