Sep. 30--New Jersey bankers expect to grin and bear another request for cash from the Federal Deposit Insurance Corp. to keep the reserve fund that protects depositors afloat.

From their perspective, the premium prepayment option the FDIC chose Tuesday to save the fund was not the worst of the rescue plans being considered. The agency rejected options to hit banks with a second special fee or to borrow from the Treasury Department.

The FDIC's five-member board voted unanimously Tuesday morning to have lenders prepay more than three years of insurance premiums on Dec. 30 to raise about $45 billion in sorely needed funds. The agency is asking for public comments on the proposal and is expected to issue a final ruling after the 30-day comment period.

Under the proposed payment plan, bankers can account for the insurance premiums in such a way that the payments will not show up all at once on income statements and take a big bite out of earnings, as the special assessment did in the second quarter. The special assessment paid by Valley National Bancorp in Wayne was $6.5 million, for example, and Paramus-based Hudson City Bancorp paid $21.1 million, the banks said in July.

"There should be relief that [banks] won't be hit with another special assessment that will hurt earnings," said James Silkensen, co-president of the New Jersey Bankers Association.

"We're positive on it," said Matthew Breese, research associate at Sterne Agee & Leach Inc.'s Portland, Maine, office. "The last time around [regulators] compromised bank profitability at a bad time."

The insurance fund will run a deficit as of today after 120 banks failed in the past two years, the agency said.

Two New Jersey banks are among the 95 to fail so far this year -- Citizens Community Bank in Ridgewood and First BankAmericano in Elizabeth. The hit to the FDIC insurance fund for those failures was estimated at $18 million and $15 million, respectively. They were the first New Jersey depositories to implode since Newark-based Dollar Savings Bank failed in 2004.

The cost of the nationwide surge in bank failures is expected to rise to $100 billion through 2013 by the FDIC's estimation.

The federal agency is required by law to rebuild the fund when the reserve ratio, or the balance divided by insured deposits, falls below 1.15 percent. It was 0.22 percent on June 30. The fund, which had $10.4 billion at the end of the second quarter, is expected to erase its deficit by 2012, the FDIC said.

From 1996 through 2006, a federal law allowed well-capitalized banks to pay no insurance premiums, so no cushion was built when times were good. In recent years, the FDIC returned to a system where all institutions pay regular premiums.

Bankers have concerns about the prepayment plan.

"Will the [FDIC] pay interest?" is what Gerald Lipkin, Valley National's chairman and chief executive officer wanted to know after he heard on the radio of the regulator's decision. He said bank earnings will be affected somewhat because money set aside for insurance premiums is money that will not be used to make loans and investments.

"That did come up," said John McWeeney, co-president of the New Jersey Bankers Association, who along with other banking industry representatives participated Tuesday afternoon in a conference call in which FDIC Chairwoman Sheila Bair and other agency officials fielded questions

"Their answer was, 'no,' and the reason was they were told by their accountants if they paid interest it would be treated as a loan and it would be charged to earnings," McWeeney said.

Gilles Gade, chairman of Cross River Bank in Teaneck, said he would rather the FDIC turn to the Treasury for funding.

"The FDIC says they have the full faith of the U.S. government," said Gade. "So why do they have to keep coming to us? What if 100 more banks fail next year?"

This article contains material from Bloomberg News.

E-mail: newman@northjersey.com

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