IndyMac may cost the fund $4-8 billion, in addition to $1.16 billion in earlier bank foreclosure costs, Bloomberg News reported Monday. Premiums for the deposit insurance fund are likely to rise, an FDIC official said.
Economist Peter Dawson said Monday a premium increase would represent the most prudent course for the FDIC.
"Needless to say, given the bank failures, this doesn't come as a surprise or a shock. The FDIC could have explored other funding options, but given the scope of the insurance funds claims, a premium increase would make the most sense at this time," Dawson said.
The FDIC is required to replenish the fund when the reserve ratio, or the balance divided by insured deposits, slips below 1.15%, Dawson said.
No cause for alarm
Further, the recent draws on the FDIC insurance fund should not alarm depositors, Dawson added. "Checking and savings deposits at FDIC-member banks are insured up to $100,000 per depositor per bank, backed by the insurance fund, and as a last resort, by the U.S. Government," Dawson said.
The U.S. Congress and President Franklin D. Roosevelt established the FDIC as part for the Banking Act of 1933. The FDIC directly examines and supervises about 5,250 banks.
Bank Sector Analysis: Underscoring Dawson's comments, the FDIC, with a premium increase, will remain adequately funded, assuming bank failures subside. An increase in bank failures in 2008-2009 would, however, most likely require Congressional attention.
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