Reporting from Washington – Despite signs of economic improvement, banks continue to fail at a brisk pace, forcing regulators to scramble to keep the industry-financed deposit insurance fund from running out of cash.

With the fund technically falling into the red today, the Federal Deposit Insurance Corp. proposed Tuesday to require banks this year to prepay $45 billion, or more than three years’ worth, of insurance premiums.

The move would allow the FDIC to avoid drawing on a $500-billion line of credit the agency has with the Treasury Department.

“It’s clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem,” said FDIC chief Sheila C. Bair. “In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer.”

Insured bank deposits continue to be “100% safe,” Bair emphasized, and analysts agreed.

Kevin Petrasic, a former special counsel at the Office of Thrift Supervision, described the FDIC’s decision, which is open for public comment for 30 days, “as the least objectionable of some not particularly good options.”

Source/Full Story: latimes.com
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