WASHINGTON – Amid ebbing public confidence in banks, the head of the FDIC promises there will be no cost to taxpayers if the agency needs to borrow from Treasury to cover the new increase in the federal deposit insurance limit to $250,000.

The agency is preparing to raise insurance premiums for banks, though the increase will cover only up to the previous insured limit of $100,000 per account and likely won't take effect for months. The insurance fund's potential liability has increased with the rise in the insurance ceiling through the end of 2009.

Sheila Bair, the chairman of the Federal Deposit Insurance Corp., said the insurance ceiling increase – mandated in the $700 billion bailout plan – won't solve all the industry ills but will bolster Americans' confidence in banks' safety.

“We're working hard to assure that our industry-funded reserves will be sufficient to cover projected losses from more bank failures,” Bair said. “At the same time – given this period of uncertainty – it's important for people to understand that we have ample authority to borrow from the Treasury Department if need be.”

If the FDIC needed to borrow from the Treasury to cover the new $250,000 insurance ceiling, the agency would impose an additional fee on U.S. banks and thrifts to cover it.

As the financial crisis grips Main Street, people “are worried about their money,” Bair told a gathering of the National Association for Business Economics. Especially for those who are retired, she said, “They want the safety of a bank. They want the safety of federal deposit insurance.”

Thirteen federally insured banks and savings and loans – including two major thrifts – have failed this year, and more collapses are expected.

Raising the insurance limit was a major victory for banks, which had pushed for the higher ceiling but weren't eager to pay steeper insurance premiums to back it. The bailout package gives the FDIC unlimited temporary authority to borrow from the Treasury if needed to cover the new $250,000 insurance limit.

The FDIC hasn't tapped the government coffers for a loan since the early 1990s, toward the end of the savings and loan crisis.

If the agency does have to borrow, the money would be repaid by insurance premiums charged to U.S. banks and thrifts “and at no cost to the taxpayer,” Bair said.

On Tuesday, Bair plans to ask the FDIC board for an increase in premiums paid by banks to replenish the insurance fund, which is now at $45.2 billion. That is below the minimum target level set by Congress and the lowest it has been since 2003.

The higher premiums, and a proposed change to the system that will make higher-risk institutions pay more than others, are expected to be approved. Collected quarterly, the higher premiums may not take effect until early next year; the proposal must first be subject to a public comment period under federal rules.

“It should have been done much earlier,” said Joseph Mason, an economist who worked for the U.S. Treasury Department in the 1990s and is now a finance professor at Louisiana State University.

At the same time, the FDIC is “doing a great job,” Mason said. The agency seized thrift Washington Mutual Inc. late last month in the largest bank failure in U.S. history and sold it to JPMorgan Chase & Co. for $1.9 billion. Last week, it brokered the proposed sale of Wachovia Corp. to Citigroup Inc. for $2.1 billion, agreeing to share potential risk from Wachovia's $312 billion loan portfolio with Citigroup by absorbing losses above $42 billion.

That deal fell apart on Friday, however, when Wells Fargo said it had agreed to acquire Wachovia in a deal worth $15.1 billion at the time, without any government support.

The 13 bank failures this year compare with three in all of 2007. The Washington Mutual collapse didn't cost the deposit insurance fund anything, but the failure in July of thrift IndyMac Bank cost it $8.9 billion.

Of the 8,500 or so federally insured banks and thrifts, the FDIC had 117 on its internal list of troubled institutions as of June 30, a five-year high.

The government's commitment to spend up to $700 billion to buy soured debts from ailing banks is likely to save some institutions that would otherwise have died. But analysts doubt it will be enough to avert a major shakeout.