Banks 'might be forced into higher FDIC premiums'

11 August 2008

Financial firms in the US are facing increasing government insurance premiums, due to recent collapses of firms.

The suggestion was made by Federal Deposit Insurance Corporation (FDIC) associate director Diane Ellis, in an interview with Bloomberg.

Chairman of the body Sheila Bair also indicated that the premiums might rise in an interview last month.

Seven banks, including IndyMac, have failed so far this year in America as the credit crunch continues.

This has significantly sapped the government's central insurance fund - which was used to prop up the failing financials.

As a result of this decline, with as much as 17 per cent of the fund spent, premiums are now likely to rise in order for the FDIC to get its reserve ratios back to normal.

"Raising rates is our first and best option if we need to get more revenue to increase the fund and the reserve ratio," Ms Ellis commented.

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