Watchdog tells US banks to pay $45bn into insurance pot

US banks are to pay $45bn (&pound;27bn) to the Federal Deposit Insurance Corp (FDIC) to cover the rising cost of banking failures.<br /><br />In an unprecedented move, the FDIC board approved the prepayment of three years of premiums at a meeting yesterday.<br /><br />The prepayment has been described as an alternative to imposing another hefty emergency fee on the still-recovering industry, or having the FDIC tap its line of credit with the Treasury Department.<br /><br />FDIC Chairman Sheila Bair said: &ldquo;Many institutions are only beginning to recover.&rdquo;<br /><br />The agency collects insurance premiums from all banks and uses this to repay depositors in failed banks.<br /><br />But the deposit insurance fund went into the red at the end of the third quarter following the highest annual level of bank failures since 1992.<br /><br />The American Bankers&rsquo; Association said the prepayment would be a strain, but was preferable to other options for meeting the costs of bank failures.<br /><br />ABA Chief economist James Chessen said: &ldquo;The prepaid assessment does come at a cost to the banking industry, impacting bank liquidity and reducing resources available for lending.&rdquo;<br /><br />Regulators have closed 120 banks in the US so far this year as the industry struggles with deteriorating loans. This compares with only 25 last year and three in 2007.<br /><br />The FDIC has estimated the total cost of failures at $100bn from 2009 to 2013. It said it would consider exempting a handful of struggling banks.