FDIC Approves Deposit Insurance Reform Regs; Bank Trades Say Premiums Too High
WASHINGTON -- The FDIC Board, in its recent open meeting, approved the final regulations implementing the Federal Deposit Insurance Reform Act. Three major banking trade associations have said that the premiums assessed at that meeting are too high.
The agency established a risk-based assessment system that will allow the insurer to more closely tie a bank's premiums to the risk it presents to the deposit insurance fund. As a result of the final rulemaking, the FDIC set the assessment rates, varying between five and seven cents for every $100 of domestic deposits, that will take effect at the beginning of 2007. "The premiums are much too high considering the FDIC's flexibility under the new system," American Bankers Association Chief Economist James Chessen said. "There is no requirement to boost the revenues of the fund--and no need to given the $50 billion in the fund already. The banking industry is in exceptional health, and there is no indication that large amounts of revenue are needed by the FDIC... Additional money sitting idle in Washington adds little to the financial strength of the FDIC, but has real consequences for the communities that banks serve." He noted that banks with supervisory concerns could pay as much as 43 basis points.
"We regret that the FDIC did not take full advantage of the flexibility it has under FDIRA to build up reserves to meet the designated reserve ratio steadily and gradually over a three- to five-year period," Independent Community Bankers of America Executive Vice President and Director of Government Relations Karen Thomas commented, "which would have avoided a substantial increase in assessment rates and allowed banks to use their credits over a longer period. High premiums result in banks having less money available to lend in communities to support economic growth and prosperity."
America's Community Bankers expressed similar sentiments.
The FDIC will also have greater flexibility to manage the funds reserve ratio within a range, similar to the system for the NCUSIF, to prevent sharp rate assessments that were possible under the old system. The board set the rate at 1.25% for 2007.
FDIC Chairman Sheila C. Bair said the agency was striving for long-term stability. "This new system will enable the FDIC to achieve our goals," she commented, "and also will add incentives for good risk management at insured institutions."
In related actions, the FDIC Board adopted regulations:
oEnabling the assessment system to react more quickly and accurately to changes in risk profiles;
oRequiring the same FDIC sign and advertising rules; and
oEstablishing penalties for institutions that fail to pay their deposit insurance premiums on time.
The FDIC has now adopted all of the regulations required within the 270-day deadline. --firstname.lastname@example.org