U.S. regulators said Tuesday they will raise premiums paid by banks for deposit insurance by 7 basis points, citing recent and projected bank failures depleting the reserve.

"We do need to take this unfortunate step," FDIC Chairman Sheila Bair said at a board meeting. The rates will go into effect on Jan. 1.

FDIC staff said they expected the industry-funded reserve to drop to $28 billion in the first quarter of 2009 from $34.6 billion in the fourth quarter.

The American Bankers Association is supporting the moves made to increase deposit insurance fund premiums to "ensure the health of the fund and the strength of the FDIC." 

In a letter from the American Bankers Association, Edward L. Yingling, president and chief executive officer said that since the fund has been built up entirely by bank premiums over time, the industry knows that keeping it strong is essential to the nation’s banking system.
 
"No one has ever lost even a penny of insured deposits," he noted.