The Federal Deposit Insurance Corporation will likely need to charge the banking industry additional fees through 2013 to keep the agency’s reserve fund a float at a level mandated by law, according to analysts from Fox-Pitt Kelton Cochran Coronia Waller.
The analysts predict that as much as $45 billion may need to be raised over the course of the next 4 years for the FDIC’s insurance fund to meet its legal requirement of keeping the fund at a level equivalent of 1.15% of the total deposits that it insures. The Fox-Pitt analysts stated that the FDIC’s insurance fund is currently standing at 0.22% of the total assets that it insures. Legally, the FDIC is required to shore up its insurance fund if it drops below the 1.15% level.
As of August 28th, the FDIC has taken over 84 banks this year amidst the one of the worst financial crisis’s since the great depression. The massive number of bank failures this year caused the FDIC to levy an emergency fee of $5.6 billion this year, on top of the annual fees that banks pay to the fund each year. At the end of the second quarter, the insurance fund dropped to $10.4 billion, down from $13 billion at the end of the first quarter.
It’s very likely that the FDIC will charge another special fee this year and will continue to do so through the year 2013. These additional fees will significantly diminish the profits of banks. Fox-Pitt estimates that the median bank will see an 8% decline in profit because of the additional fees. The analysts also predict that Goldman Sachs Group Inc (NYSE:GS) will be the least affected bank, with only 1% of its income being affected, and SunTrust Banks Inc (NYSE:STI) will be the most affected, with its fees coming at in 371% of its total earnings per share.
The FDIC’s governance board has until September 30th to adopt a fee that banks would set aside during the third quarter of 2009.
