FDIC Ups Deposit Insurance Premiums; ABA Cautious

Most banks are set to see their deposit insurance premiums double next year, after the Federal Deposit Insurance Corp. announced Tuesday it had voted to adopt a final rule increasing risk-based assessment rates uniformly by 7 basis points (7 cents for every $100 of deposits), on an annual basis, for the first quarter of 2009. The move comes as a spate of bank failures, including large failures tied to IndyMac Bank and Washington Mutual earlier this year, have drained the FDIC’s Deposit Insurance Fund, and forced a need to replenish reserves ahead of what is expected to be a growing string of bank failures during next year. This year, 25 banks have failed to date. “With higher levels of bank failures, the FDIC’s resolution costs have increased significantly. This assessment increase creates a path for the fund to return to its statutorily mandated level,” said FDIC chairman Sheila Bair, in a statement. “The banking system is the bedrock of our economy and deposit insurance has played a vital role in providing stability to the system. Maintaining a strong fund positions the FDIC well to handle future challenges.” Currently, banks pay between 5 and 43 basis points of their domestic deposits for FDIC insurance, with most paying between 5 and 7 basis points. Under the final rule, risk-based rates would range between 12 and 50 basis points (annualized) for the first quarter 2009 assessment, with most paying between 12 and 14 basis points. Not surprisingly, the American Bankers Association attempted to strike a balance between recognizing that increased deposit premiums are needed, and its displeasure that the federal government was stepping in to take money away from members that it said could be used for lending. “While we understand the need to rebuild the insurance fund, timing can make a big difference when the economy is in turmoil and our communities can least afford tight credit,” said Edward Yingling, president and CEO at the ABA. “We want to be sure the FDIC monitors the pace of rebuilding in order to strike the right balance between building the fund quickly and not taking money out of the system unnecessarily.” Yingling also said that the ABA believes that the FDIC’s cost projections are too high. “Should its projections prove to be too conservative, we hope the FDIC would immediately move to adjust premiums downward so as not to further restrict bank resources that could be used to meet the credit needs of our customers and communities,” he said. Write to Paul Jackson at [email protected].