March 20 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair, seeking to quell opposition to a fee propping up the deposit insurance fund, told community bankers the biggest share of the cost will be borne by big lenders.

“Even though this increase comes at a difficult time, I strongly believe that keeping deposit insurance industry-funded will be better for you and your customers when this crisis is over,” Bair told the Independent Community Bankers of America today in Phoenix. More than 70 percent of the fee will be paid by lenders with assets exceeding $10 billion, she said.

Bair said deposit insurance is a “good bargain” and that without added revenue, the fund may evaporate. She hinted the agency may ease the burden on community lenders. The Washington- based bankers’ group, with almost 5,000 members, has lobbied to reconsider the fee, saying higher costs may cut 2009 earnings.

The FDIC plans to charge banks the one-time assessment July 1 to replenish its deposit insurance fund that was drained by 25 bank failures last year. Bair said the FDIC may “trim back” the levy of 20 cents per $100 of insured deposits to “single digits” if lawmakers pass pending legislation to expand the agency’s borrowing authority from the Treasury Department.

“Without additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero,” Bair said.

The bankers’ group got more than 1,000 messages from executives after the fees were announced Feb. 27, complaining that earnings might be significantly reduced this year, President Camden Fine said March 3. The organization on its Web site has urged members to protest to the FDIC. As of this week, the agency had posted more than 600 comments on its Web site.

Senate Legislation

The Senate is considering a bill to permanently raise FDIC borrowing authority to $100 billion, with access to $500 billion through Dec. 31, 2010. The House of Representatives on March 5 passed a measure that would triple the credit line to $100 billion and permanently raise the deposit-insurance limit to $250,000, from $100,000.

“I’m optimistic that Congress will soon act on the borrowing authority increase,” Bair said. “This should give us the breathing room we need to reduce the special assessment, while covering all projected losses, with industry funds.”

FDIC’s credit line with Treasury has been unchanged since 1991 while she said the industry has tripled in size.

“We can’t discriminate because of size,” she said. As the agency reviews the issue before making a decision by late May, the FDIC will “consider ICBA’s suggestion to use assets, not domestic deposits for the assessment base.”

Assets, Deposits

Assessing banks based on their assets would be less burdensome to community banks that “played by the rules,” Fine said in a statement on Feb. 27. He proposed changing the calculation so that banks with more assets, which take on higher risks, would proportionally pay more because they “helped trigger the problems that led to the fund being depleted.”

FDIC-insured banks lost $32.1 billion in the fourth quarter, the agency said today in revising industry losses from $26.2 billion reported three weeks ago to reflect “substantially higher” goodwill impairment costs. It’s the first deficit for a three-month period since 1990. U.S. banks and other financial companies posted $845 billion in writedowns and credit losses since 2007 in the worst financial crisis since the Great Depression.

“This is one of the most difficult periods we’ve had to deal with since the FDIC was created 75 years ago,” Bair said.

Mark-to-Market

Bair said she supports a proposal by the U.S. Financial Accounting Standards Board on the definition of market value that would make it easier for banks to interpret fair-value rules. The rule is blamed by lawmakers for worsening the credit crisis.

“I think it will help a lot,” she said. “We have certainly been pushing, advocating with the FASB” and the Securities and Exchange Commission “to change rules in this direction.”

The FDIC hired a senior-level executive to manage community bank outreach, Bair said. The office’s director, Paul Nash, will create a special advisory committee dedicated to “issues unique to community banking,” she said.

The FDIC insures deposits at 8,305 institutions with $13.6 trillion in assets.

Bair said she wants to “end too-big-to-fail” models that have shaped U.S. policy and wants financial firms to reduce systemic risk by “limiting size” and “complexity.” She said regulators “need to impose higher capital requirements” to ensure banks have enough capital to withstand worsening economic scenarios.

To contact the reporter on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net.

Last Updated: March 20, 2009 16:15 EDT