FDIC chair says more banks in danger of failing

The chairwoman of the Federal Deposit Insurance Corp. said Tuesday more banks are in danger of failing, and that the government agency expects to raise premiums to restore its reserve fund after paying out billions of dollars to depositors at IndyMac Bank.

Sheila Bair was in San Francisco on Tuesday in a campaign to reassure consumers that up to $100,000 they have in a bank, failed or not, is protected by a program that’s been in place since the bank failures of the late 1920s. For certain retirement accounts, deposits of up to $250,000 are covered.

Bair said in an interview with The Associated Press that she expects turbulence in the banking industry to continue well into next year, and more banks to appear on the FDIC’s count of troubled institutions. A count for the second quarter is expected to be out by mid-August.

Of the 8,500 banks in the country, 90 were in trouble in the first quarter. The FDIC does not disclose the banks’ names.

“That number will go up and the number of assets will go up, but it will still be a fairly low range when you look at this historically,” Bair said.

Only 13 percent of banks that make the list fail, on average, Bair said. Most are nursed back to health or acquired by stronger institutions, she said.

The FDIC’s reserve fund is expected to drop after IndyMac’s losses are accounted for, but the reserve should weather future payouts, she said.

Healthy banks would have to make up the shortfall with higher fees. The FDIC is required to keep a reserve fund totaling 1.15 percent of estimated insured deposits.

“With the IndyMac projected loss, that will bring us below 1.15, which means we are required to implement a restoration plan to bring the ratio back up to 1.15 in five years,” Bair said.

“Our industry-funded reserves, which continue to be replenished through deposit insurance premiums, will be enough to cover whatever losses we will suffer as we work through this more challenging credit environment,” she said.

IndyMac Bank’s assets were seized by federal regulators July 11 after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. The bank was the largest regulated thrift to fail, regulators said.