Running the deposit insurance fund in the red creates a moral hazard that the Federal Deposit Insurance Corporation and Obama administration appear willing to do for an extended period, according to one investment bank. The deposit insurance fund, which protects depositors upon a bank's failure, is a negative $15.2 billion -- a level that is "inadequate to insure for a future financial crisis, analysts at Keefe, Bruyette & Woods said. Earlier this week, the FDIC announced proposals to change the way it calculates fees to a system based on assets rather than domestic deposits. Chairman Sheila Bair said the change means "institutions that pose higher risk would pay higher assessments when they assume these risks rather than when conditions deteriorate. "During the crisis, it became clear that our large bank pricing metrics were lagging indicators of financial deterioration, to a greater extent than the metrics we use for smaller institutions," Bair said. While the change is intended to shift the burden of maintaining a strong deposit insurance fund to large banks from small banks, the more important issue is the FDIC's decision to keep the fund at modest levels for all banks, according to KBW. "The administration and Congress are willing to maintain a significantly underfunded deposit insurance fund for the next decade," said the analysts, which include Brian Gardner, senior vice president of Washington research for the New York-based firm. "There is little market discipline on deposit pricing – all deposits are fully backed by the government subsidy of an inadequate reserve – and therefore taxpayers are dependent on regulatory oversight to limit future access to deposits for speculative lending and FDIC losses," KBW said. The landmark Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to get the deposit insurance fund back to 1.35% of deposits, although that level isn't mandated as necessary until 2020. This means the government is content to leave it underfunded by at least $100 billion for another decade, according to KBW. Analysts said a plan to recap the industry to be able to withstand a financial crisis by 2013 would cost 28 basis points of annual return on assets, or about a quarter of profits. Although reaching the minimal Dodd-Frank level of 1.35% over 10 years, the cost is 6 basis points annually, which is "a manageable level," KBW analysts said. The FDIC has closed 143 banks so far this year on top of 140 last year. This has pushed the deposit insurance fund into its current negative position, and one market watcher also thinks it will remain negative for some time. Write to Jason Philyaw.