Some of our regular readers may remember an article we published back in September that mentioned the FDIC’s plan for injecting a little more money into their Deposit Insurance Fund (DIF) by making banks prepay three years of their FDIC fees, to provide $45 billion in much needed liquidity for the agency. After a month long period of debate, the FDIC finally announced today that it plans on following through on this plan, requiring banks that wish to remain insured by the FDIC to pay their premiums for the next three years when they pay their fourth quarters fees on December 30th.

fdic-glassLeast Costly Option

Both the FDIC board and the banking industry agreed on the prepayment solution as the least costly option that will allow the FDIC to ensure liquidity during this time of increased bank failures. The FDIC also put in provisions to address the concerns of smaller banks, who feared that this proposal would favor the larger institutions who had the capital to afford a three year prepayment. For banks that can demonstrate that this up front payment will cause too much of a financial hardship, the FDIC has agreed to waive the prepayment requirement.

This measure was seen as the preferred alternative to other options which required the FDIC to impose hefty emergency fees on the still faltering financial industry, or to tap the US Treasury (and taxpayers) for additional funds.

Desperate Times, Desperate Measures

The fact that the FDIC felt it necessary to have any sort of change in its payment in the first place demonstrates a growing concern over the rate of bank failures and the possibility of a dwindling DIF if banks continue to fail at the same rate over the next few years. Each bank failure can cost the FDIC anywhere from $100 million to over $1 billion, and estimates have placed the cost of bank failures over the next four years to total over $100 billion.

However, as of yet, depositors need not be worried about the security of their money, as the FDIC states it the DIF still has enough to insure any failures that may occur. However, with 120 banks failed so far this year, and with the list of “troubled” institutions reaching 416 this August, it is comforting that the FDIC has had the foresight to up its liquidity, just in case the DIF does need a cushion to ride out the rest of this period of increased bank failures.

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