FDIC Ups Bank Fees To Boost Insurance Fund

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(AP) Federal regulators are raising the fees paid by U.S. banks and thrifts, and levying an emergency premium to rebuild a deposit insurance fund depleted by a cascade of bank failures.

The Federal Insurance Deposit Corp. says it now expects bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion.

The FDIC says the economic crisis, which has caused dozens of recent bank failures and the insurance fund to drop to its lowest level in a quarter-century, warranted extending the plan to rebuild the insurance fund from five years to seven.

The nation's banks lost $26.2 billion in the last three months of 2008, the first quarterly deficit in 18 years, as the housing and credit crises escalated.

On Thursday the FDIC said that U.S. banks and thrifts also more than doubled the amount they set aside to cover potential loan losses, to $69.3 billion in the fourth quarter from $32.1 billion a year earlier.

Rising losses on loans and eroding values of assets "overwhelmed" banks' revenue in the fourth quarter, the FDIC said. More than two-thirds of all banks and thrifts turned a profit in that period but their earnings were outstripped by large losses at a number of major banks.

Fourteen federally-insured institutions already have failed this year, extending a wave of collapses that began in 2008. Last year's tally of 25 banks shut down by regulators was more than in the previous five years combined and up from only three bank failures in 2007.

The failures sliced the amount in the deposit insurance fund to $18.9 billion as of Dec. 31, the lowest level for the fund since 1993, during the savings and loan crisis. That compares with $52.4 billion a year earlier.

The regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.

For all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990, amid the ravages of rising unemployment and falling home prices that have sent loan defaults soaring.

The fourth-quarter loss of $26.2 billion was the biggest in the 25 years that the agency has been compiling quarterly results. It compared with a $575 million profit in the fourth quarter of 2007.

The latest indications of financial distress came as the Obama administration proposed boosting the federal deficit by an additional $250 billion this year, enough to support as much as $750 billion in increased spending under the government's rescue program for banks and other financial institutions. That would more than double the $700 billion bank bailout passed by Congress last October that has provided aid to Citigroup Inc., Bank of America Corp. and hundreds more financial institutions of all sizes.

The government began "stress tests" Wednesday for 19 of the largest banks that will gauge whether each institution has adequate capital to survive a severe downturn. Banks that need new funds will be given six months to raise the money from the private sector or, failing that, from additional capital injections under the bailout program.

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