Banks’ insurance premiums rise as FDIC seeks to recoup losses

150px-US-FDIC-Logo.svgAs the FDIC seeks to recover funds paid out to failed banks during the 2008 financial crisis, insurance premiums for thousands of U.S. banks have increased.

The FDIC’s efforts have netted the regulator millions of dollars resulting from legal settlements, but many still-struggling financial institutions have found it difficult to cope with rising insurance costs, according to The Wall Street Journal.

Industry experts estimate that premiums have increased by at least 15 percent for small banks since the height of the financial crisis, and some insurers are also raising deductibles and designing policies that leave banks uncovered if regulators intervene in the future.

Chubb Corp. and Travelers Cos. are a few of the largest insurers that have raised rates for small banks.

“In the small bank segment, the main driver of higher directors-and-officers [insurance] rates has been bank failures,” Christine Wartella, the global manager for banking in Chubb’s specialty insurance department, said, The Wall Street Journal reports.

While insurance rates have put pressure on banks’ bottom lines, low interest rates, a heightened regulatory regime and mediocre loan demand have continued to affect profit. Many smaller financial institutions would like to sell themselves off but are unable to find buyers.

“For banks that might be in troubled condition, there is no coverage available or no coverage that is realistically affordable,” Scott Coleman, a banking lawyer at Minneapolis-based Lindquist & Vennum, said, according to The Wall Street Journal.

Since October, the FDIC has filed 19 lawsuits against former bank executives and directors, and many industry experts expect more in the near future. The regulator’s board has authorized 94 lawsuits against former bank heads this year, an increase from 54 over the same period last year. While FDIC Board authorization does not necessarily mean that the regulator will pursue a lawsuit, it does open the door for settlement talks.

“Clearly we’re at the peak of reviewing and making decisions on these types of cases,” Rick Osterman, the acting general counsel of the FDIC, said, The Wall Street Journal reports.

The lawsuits filed by the FDIC seek to recoup some of the $86.8 billion in losses from the FDIC’s deposit insurance fund, which is taxpayer-backed and subsidized by bank assessments. Last year, the FDIC collected $337 million from settlements, an increase from $231.9 million in 2011.

“The FDIC is trying to recoup losses any way they can,” Kevin LaCroix, the executive vice president of RT ProExec, a department of Chicago-based R-T Specialty, said, according to The Wall Street Journal.

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