Tuesday, May 19, 2009

FDIC - One Time Charge to Big Banks

According to the WSJ the FDIC is considering a one time fee based on the company's asset size instead of the typical level of deposits. This would of course hit the big banks much worse. It seems all you are doing is running money from the taxpayer to the Treasury and the Fed on to the banks which in this case makes its way to the FDIC. Anybody who thought American capitalism was efficient think again. We are not talking about massive numbers, $100 million for the like of Goldman and Wells Fargo, (compare that to say a 4 to 8 billion build in provision for losses from Wells Fargo) but it is one more hit to the banks.

The Federal Deposit Insurance Corp. is considering levying a one-time fee to replenish the agency's deposit-insurance fund that would hit big banks harder than it would hit small ones, according to people familiar with the matter.

The agency fund, which protects trillions of dollars in U.S. deposits, has been depleted by 58 bank failures since January 2008. There was just $19 billion in the fund at the end of 2008, a historically low level. FDIC officials have faced a dilemma over how to rebuild the fund, which is financed by fees levied on banks, while the industry remains weak.

In a reversal from prior practice, FDIC officials want to calculate the proposed one-time assessment based on a company's asset size instead of its level of deposits. This would saddle big banks, such as Citigroup Inc., Bank of America Corp., J P. Morgan Chase & Co. and Goldman Sachs Group Inc., with a larger proportion of the cost. That is because they have a much higher proportion of assets compared with deposits, relative to smaller banks.

Several of the country's largest banks are struggling to regain their footing. While it is unclear how much the change could cost, it is likely a few banks could pay more than $100 million in additional fees each, someone familiar with the matter said.

and - I really don't have an idea which way that vote is going to go. 70 billion is a decent enough size number that it will test the Congress bailout mood.

Much depends on whether the House of Representatives passes legislation this week that would increase the amount of money the FDIC can borrow from the Treasury Department from $30 billion to $100 billion. If the bill doesn't pass, the industry fees could be much higher.

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