FDIC to Propose Banks to Prepay 3 Years of Fees

In an unprecedented move, the nearly bankrupt FDIC is proposing a plan to replenish its depleted fund by requiring banks to prepay 3 years worth of insurance fees.  This would likely generate over $36 billion in additional reserves.  The FDIC started the year with a reserve of over $45 billion and the reserve is now down to around $10 billion.  This is the result of 95 banks failing so far this year. 

This current economy has already put tremendous downward pressure on bank profits.  The banks have already seen an increase in FDIC fees and need to increase reserves as a result of weakening credit quality.

If this plan is implemented, many people believe even more banks will fail. During the past 10 years the FDIC has on average taken over about 10 banks a year.  With 95 takeovers and counting, this could just push numerous banks over the edge. 

This has also caused all business and individual customers to be paying much higher fees with their banks as these fees will most certainly have to be passed on to the consumer. 

It is getting harder for small local banks to compete in this environment.  We currently have over 8,000 banks.  Some are predicting this number could be reduced significantly due to closures and mergers.  These are interesting times and certainly the banking community is taking many body shots.