WASHINGTON-Last week Federal Deposit Insurance Corporation Chairman Don Powell announced that the board voted to maintain the current deposit insurance assessment rates for the first half of 2006, which CUNA jumped on. Powell, who is leaving the FDIC to coordinate the administration's efforts to rebuild the Hurricane Katrina and Rita ravaged areas, explained that the insurer anticipates the drop in the equity ratio due to expected, insured deposit growth. "We are also projecting a range of possible outcomes for the funds' reserve ratios by June 30 and a best estimate of 1.22% for (the Bank Insurance Fund) - which is below the designated reserve ratio - or `DRR' - of 1.25%," he said. "But our projected range for the BIF ratio also includes plausible outcomes that meet or exceed 1.25%." The projected best estimate for the (Savings Association Insurance Fund) is 1.29% as of June 30. Powell, a staunch critic of the credit union tax-exemption, added, "Of course, we are hopeful that deposit insurance reform legislation will pass this year. And with passage, among other changes to the system, the two funds would merge. If that happens, we project a range for the combined fund reserve ratio of between 1.20% and 1.29%, with a best estimate of 1.24%, by June 30, 2006." "'Hopefully is kind of a funny term to use in risk management," CUNA Vice President of Communications and Media Outreach Pat Keefe said. CUNA questioned the safety and soundness of the policy. Senior Vice President of Governmental Affairs John McKechnie, as quoted in CUNA's News Now, said, "There are public policy issues related to this FDIC decision that bring up safety and soundness concerns. We ask that this be the primary focus in making any deposit insurance decisions. The American public deserves nothing less." While the NCUSIF equity ratio is permitted to drain to 1.20% for a year before being required by law to assess a premium, the FDIC is required to charge a mandatory premium of 23 basis points if the ratio remains below 1.25% for more than a year. NCUA has the authority to determine the premium rate for federally-insured credit unions. "Congress set that level for a reason. They felt that level was appropriate for FDIC," Keefe said in noting the differences in treatment. However, FDIC Assistant Director of Communications David Barr pointed out, "Right now, the rate is above the designated ratio, so there is nothing right now to force us to assess a premium." He added that FDIC has done what it can to grow the fund by cutting costs, but deposit growth has simply outpaced those efforts. Additionally, he said, by waiting six months for the legislation or other changes, premiums would only creep up about 1.5 basis points. Deposit insurance reform has been caught in a legislative tug-of-war over coverage level increases for a few years now, which only intensified after the Senate proposed allowing the regulators to set the coverage levels. In addition to the coverage levels, the legislation would combine the BIF and SAIF, eliminate the across-the-board 23 basis point premium, provide rebates for older institutions that helped the fund out of a jam in the past, and establish a target range between 1.20% and 1.29% rather than the 1.25% floor. Barr said agency staff took the legislation into consideration in making its recommendation but the board did not. This was CUNA's second pro-active questioning of bank-related activity. Earlier this year, CUNA criticized Zions Bank's application to acquire a Texas bank in formal filings with the regional Federal Reserve office. -
scooke@cutimes.com
