At present, the fund is stocked mostly by fees levied on U.S. banks. But if the FDIC raises the fees, that would siphon more money from already cash-strapped financial institutions. It could also deplete funds that banks would otherwise use to make loans.
But if the FDIC moves too cautiously, the fund could run dry at a crucial time. That could hurt public confidence in the banking system and force the government to use taxpayer dollars to restock the fund.
The agency could split the difference by raising premiums faster than most banks would like but slow enough so that the rebuilding of the fund takes years, not months.
The FDIC is likely to unveil its intentions in October.
The fund's $52.8 billion at the end of the first quarter was considered low by historical standards, covering 1.19% of all insured deposits.
Two bank failures in the second quarter are estimated to have cost the fund $216 million, and the four bank failures so far in the third quarter could have cost another $9 billion. The failure of IndyMac Bank in July may have wiped out more than 10% of the fund.
Such losses could easily push the fund below a 1.15% level, triggering a requirement that the FDIC come up with an action plan within 90 days to bolster the fund.
"Congress gave the FDIC the mandate to replenish the fund through higher premiums on the industry," said Art Murton, the FDIC's director of insurance and research. "The FDIC has some flexibility in setting premiums, which will require striking a balance between building the fund quickly and ensuring that banks have sufficient funds to support the credit needs of the economy."
The premiums charged by the FDIC may seem small, but they can be significant for struggling banks. The government has the discretion to levy higher fees on higher-risk banks, but those are the institutions that often can least afford it.
Most banks now pay the FDIC five cents for every $100 of insured deposits. Higher-risk banks are paying as much as 43 cents to insure $100 in deposits.
"To slam an eight-, 10- or 15-cent premium, that's going to cripple a lot of banks," said Camden Fine, chief executive officer of the Independent Community Bankers of America, a trade group.
Some analysts expect the FDIC to move aggressively despite such complaints. "They don't want headlines suggesting the deposit fund is shrinking and inadequate," said Jaret Seiberg, a Washington analyst for the Stanford Group, a diversified financial-services company. "They need a fortress deposit-insurance fund." Mr. Seiberg said the agency could raise premiums on healthy banks to 15 to 20 cents for every $100 of insured deposits.
Government officials have gambled wrong before. In response to the Great Depression, Congress created the FDIC in 1933 and a separate agency called the Federal Savings and Loan Insurance Corp. in 1934. The FDIC insured deposits at banks, while the FSLIC backed deposits at savings and loans.