FDIC looking to shore up fund

Sources say it seeks banks' aid

— One provision of the wide-ranging Helping Families Save Their Homes Act, which became law in May, was an extension of the $250,000 maximum on federally insured bank accounts to 2013.

Congress increased the maximum that can be insured in an account from $100,000 last year, but the higher limit was to expire on Dec. 31. Now the insurance limit remains at $250,000 until Dec. 31, 2013, when it will revert to $100,000.

The four-year extension has saved banks time and paperwork, said Tim Yeager, associate professor of finance at the University of Arkansas at Fayetteville.

Now the regulators need some assistance. They have approached big banks about borrowing billions to shore up the dwindling fund that insures regular deposit accounts.

The loans would go to the fund maintained by the Federal Deposit Insurance Corp. that insures depositors when banks fail, said two industry officials familiar with the conversations, who requested anonymity because the plans are still evolving.

Regulators also are considering levying a special emergency fee on all banks, charging regular fees early or tapping a $100 billion credit line with the U.S. Treasury, the people said.

FDIC spokesman Andrew Gray said that while borrowing from the banks "is an option, it's not being given serious consideration." The board meeting where the plans will be discussed is next week.

But a government official familiar with the FDIC board's thinking said earlier Tuesday that the plan was being considered. He requested anonymity because he was not authorized to discuss the matter.

The fund, which insures deposit accounts up to $250,000, is at its lowest point since 1992, at the height of the savings-and loan crisis. Ongoing losses on commercial real estate and other loans continue to cause multiple bank failures each week.

Yeager said that when the insured limit on accounts was at $100,000 and a customer wanted to put $200,000, for example, in an insured account, banks often utilized the Certificate of Deposit Account Registry Service. The bank would place the extra $100,000 with the registry and the account would be insured at another institution. The original bank then took another customer's $100,000 account from the registry, so the bank kept the same amount of deposits, Yeager said.

"So a bank would have to do more paperwork to insure that $200,000," Yeager said. "Now with the $250,000 limit, banks don't have to worry about doing that for accounts less than $250,000."

It made sense to extend the $250,000 limit until 2013 because consumers were hampered from buying certificates of deposit that matured beyond the original 2009 deadline, said Ken Hammonds, president of the Arkansas Bankers Association.

Hammonds said he believes the $250,000 insurance limit will eventually be extended beyond 2013 or made permanent.

Information for this article was provided by Alan Zibel of The Associated Press and by David Smith of the Arkansas Democrat-Gazette.

Business, Pages 27, 32 on 09/23/2009

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