They are 4 letters associated with safety and security: FDIC. Especially in difficult economic times like these, with bank billions of taxpayer dollars being given to banks to keep them from failing, the insurance on bank deposits is more important to savers and investors than ever before. The FDIC has been under a great deal of pressure with bank failures becoming an increasingly common occurrence.

On Wednesday, FDIC Chairman Sheila Bair revealed that there may not be sufficient funds to back bank deposits over the course of the next year, when more bank failures are expected. As a result, the FDIC is charging banks an emergency, one-time fee to continue having their deposits backed by what is supposed to be guaranteed insurance. Banks are outraged, especially smaller banks that are seeing up to 50% of their profits from last year erased by the FDIC fee, and are organizing massive protests to combat the fee.

The FDIC, however, feels that they have no choice but to raise additional funds from banks. At the end of the third quarter of 2008, the FDIC fund had over $34 billion in funding. After the fourth quarter, however, the fund was down below $19 billion, spending more than $15 billion in one quarter making customers whole after banks had failed. The fund lost a total of $33.5 billion during 2008, when 25 banks failed. The first quarter numbers are not available yet for FDIC figures, but there have already been 16 bank failures this year.

The fee charged by the FDIC is expected to raise more than $27 billion. Banks argue that the FDIC should access government money instead of coming to them directly. So far, Congress has approved $30 billion to be directed to the FDIC if they request the funds, and talks are underway now to increase that figure to $100 billion. Bair admits that they may need to accept taxpayer money at some point, but feels strongly that “banks, not taxpayers, are expected to fund the system.”

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Tags: bank deposit insurance, FDIC

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