The agency plans to mail depositors roughly $200 million Thursday.

The maximum the FDIC would insure in any single deposit account was raised from $100,000 to $250,000 at the height of the financial crisis in October 2008, as part of the $700 billion rescue package.

The law President Barack Obama signed Wednesday makes the higher cap permanent, retroactive to Jan. 1, 2008.

Pushing the effective date back to the beginning of 2008 gives about 9,500 customers of six banks that failed between Jan. 1 and Oct. 3, 2008, whose accounts held between $100,000 and $250,000 more money than they would have received. The FDIC said about 500 remaining customers’ accounts held more than $250,000 per depositor, and they still aren’t covered for that excess money.

The FDIC covers up to $250,000 per depositor per bank, including individual retirement accounts, or IRAs. Joint accounts are insured up to that amount for each co-owner of the account.

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But the news was not all good for the industry. Troubles at smaller lenders swelled the number of problem banks to nearly 10% of all institutions, according to the report by the Federal Deposit Insurance Corp.

The agency said that 775 institutions — most of them community banks — were on its list of troubled banks as of March 31, up from 702 at year-end.

That was the most since 1,066 in 1992, as the savings and loan crisis played out. The number peaked at 2,165 in 1987, but there were about twice as many U.S. banks and thrifts then, an FDIC spokesman said.

Names on the list are kept confidential to keep from spooking depositors while regulators work with the problem banks to clean up soured loan portfolios and to raise capital. “The vast majority of troubled banks do not fail,” FDIC Chairwoman Sheila Bair said in announcing the quarterly industry results Thursday morning.

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Bair, in an April 30 letter to Senate Banking Chairman Christopher Dodd and Agriculture Committee Chairman Blanche Lincoln, said the proposal championed by Lincoln would create “weakened, not strengthened, protection of the insured bank.”

“If all derivatives market-making activities were moved outside of bank holding companies, most of the activity would no doubt continue, but in less-regulated and more highly leveraged venues,” Bair wrote. “Even pushing the activity into a bank holding company affiliate would reduce the amount and quality of capital required to be held against this activity.”

Lincoln has said she isn’t sure her plan to make banks wall off their swaps-trading desks has enough support to become part of the Senate’s overhaul of financial regulations. Bair is the third U.S. regulator to express concern about proposals to curb participation by banks in swaps, which some lawmakers said helped bring the financial system to the brink of collapse.

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The move signals that the U.S. government is not yet ready to drop the temporary measures adopted during the financial crisis to prop up the banking system, the Journal said.

Industry officials have warned that ending the program could lead to more bank failures because businesses would pull money from banks that they believe are in trouble, the paper said.

The Transaction Account Guarantee program was put in place in October 2008 when businesses were pulling their money out of smaller banks and parking the funds in larger institutions perceived to be safer. [ID:nN07105417]

The program provides unlimited federal backing for no-interest transaction accounts that businesses typically use to meet payroll and pay vendors.

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The debt was broken into three parts, with an $850 million portion that matures no later than October 2012 pricing to yield 21 basis points more than interest-rate swaps, said the person, who declined to be identified because terms aren’t public. Barclays Capital underwrote the sale, the person said.

The debt represents part of the assets the FDIC acquired after seizing Chicago-based Corus Bank in September, the person said. The offering was one of two sales planned for this month of bonds tied to loans the FDIC sold partly last year through so-called structured loan sales, people familiar with the matter said last month.

The pace of bank failure will “pick up this year and is going to exceed where we were last year,” FDIC Chairman Sheila Bair told reporters last month.

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Almost half of the loans were originated by Silverton Bank NA, whose collapse in May was the biggest in Georgia history. Community banks that joined Silverton in providing $80 million for the hotel-condo complex, as well as backing for 39 other projects, could be forced to write down their stakes to reflect sale prices.

– income from continuing operations of $7.6 million, or $1.09 per diluted common share, as compared to $4.5 million, or $0.55 per diluted common share, for the fourth quarter of 2008;

– net income of $7.6 million, or $1.09 per diluted common share, as compared to $4.5 million, or $0.55 per diluted common share, for the fourth quarter of 2008; and

– operating earnings(1) of $6.6 million, or $0.96 per diluted common share, as compared to $9.7 million, or $1.18 per diluted common share, for the fourth quarter of 2008.

For the year ended December 31, 2009, FPIC reported:

– income from continuing operations of $33.6 million, or $4.57 per diluted common share, as compared to $32.1 million, or $3.69 per diluted common share, for 2008;

– net income of $34.0 million, or $4.63 per diluted common share, as compared to $32.1 million, or $3.69 per diluted common share, for 2008; and

– operating earnings of $31.4 million, or $4.27 per diluted common share, as compared to $41.1 million, or $4.73 per diluted common share, for 2008.

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Ms. Bair’s challenge has increased as the number of so-called problem banks on the F.D.I.C.’s watch list has spiked. But there is little reason the F.D.I.C. can’t exterminate the banking industry’s living dead, Breakingviews argues.

On Tuesday, the agency reported that 702 problem institutions were on its watch list as of the end of 2009. Those institutions had combined assets of $403 billion, or the equivalent of 3 percent of the nation’s economic output. While those figures may seem scary, the F.D.I.C. also managed to collect $46 billion in new cash from banks, bringing its total cash and liquid securities to $66 billion.

That may not seem to be much of a cushion, Breakingviews concedes. After all, the average estimated loss rate for bank failures since 2007 — excluding the collapse of the giant Washington Mutual — is 23 percent of assets.

Assuming no truly gigantic banks founder — that is, the ones considered “too big to fail” — the F.D.I.C.’s kitty is currently around $27 billion shy of being able absorb all its sick banks, Breakingviews calculates.

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The change, which would require legislation, is part of a broader effort by the administration to raise taxes and fees on banks to discourage risk-taking and to create better shock absorbers for future crises.

The FDIC fund is designed to gather money in good times and spend it in bad times. But the fund drained quickly as banks failed over the past two years, forcing the FDIC to increase fees and impose special assessments at the very moment that banks could ill afford the additional expense.

The insurance fund also ran out of money during the last banking crisis, in the late 1980s and early 1990s.

The administration’s budget proposal, released Monday, suggests that the FDIC needs a larger insurance fund.

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In announcing her competing plan, Bair said:

A broad consensus of academic studies agrees that poorly designed compensation structures can misalign incentives and induce risk taking. I share those concerns. The recent crisis has shown that compensation practices that encourage excessive risk can create significant losses in the financial system and the deposit insurance fund.

What I like about Bair’s proposal is that it is designed both as a longer-term solution and meant to align compensation with the larger systemic risks, which Bair explicitly mentions in the quote above. On the other hand, I see the windfall tax proposal as a gimmick designed to harness the public’s outrage on a serious issue and misdirect it toward a one-off political ploy. Windfall taxes are not going to change systemic issues on risk, compensation and moral hazard, whereas the insurance levy does move in that direction.

The public is right to be angry about excessive compensation in financial services. The real issue in compensation has to do with individuals being compensated in the present for riskier bets which appear to accrue higher payoffs in the near-term but have disastrous consequences longer-term. Imposing a one-off tax does nothing to eliminate this problem. Tying compensation and risk together does.

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