Obama Plan Could Mean Huge FDIC Premiums

By Joe Adler 

The Obama administration proposed Monday to raise the required level of reserves at the Federal Deposit Insurance Corp. to more than $80 billion — a move that would require banks to pony up a huge amount of money. In its proposed 2011 budget, the White House, citing the insolvency of the Deposit Insurance Fund, said that allowing the ratio of reserves to insured deposits to fluctuate in a range of 1.15% to 1.5% has proven “inadequate to handle the unexpected risks and losses that come with a downturn in the economy.” Lawmakers should consider “a level above 1.5% in order to maintain positive fund balances during future downturns,” the budget said. The proposal appeared to be a trial balloon, and some sources made note of the fact that the administration did not ask lawmakers to act but merely said “it may be appropriate” for Congress to consider raising the reserve level. Other observers said the administration may only be suggesting that the current 1.5% cap be removed because it requires the FDIC to return funds to the industry. Either interpretation made industry representatives nervous, though they conceded that the FDIC had been underfunded before the financial crisis. Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc., said she hoped the Obama proposal is a sign that the deposit insurance system will be revamped further. “I hope it’s an early indication that the FDIC will look at a more actuarially reasonable way to set the” designated reserve ratio, she said.

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