Banker Can You Spare a Dime? FDIC Announces New Deposit Insurance Assessments

September 29, 2009 at 6:44 pm Leave a comment

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rule making (NPR) that asks for a substantial fee advance.  Specifically, the proposed rule would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012—more than three years worth in one shot.  According to FDIC estimates, the total prepaid assessments would equal approximately $45 billion.

Together with the proposed fee advance, the FDIC also announced that the Board voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011, and extend the insurance fund restoration period from seven to eight years.

In articulating the ratlonale for the prepaid assessments, the FDIC declared that the move would allow the financial servcies industry “to strengthen the cash position of the Deposit Insurance Fund (DIF) immediately, while allowing the capital impact of deposit insurance assessments to be felt gradually over time as the industry improves its own financial position.”  The FDIC further declared that “The banking industry has substantial liquidity to prepay assessments. As of June 30, FDIC-insured institutions held more than $1.3 trillion in liquid balances, or 22 percent more than they did a year ago. Prepaying assessments will put the industry’s liquid balances to good use in conserving capital and helping to maintain the capacity of banks to lend while they rebuild the DIF.”  According to the FDIC’s internal analysis, the proposed arrangment “is much less likely to impair bank lending than a one-time special assessment.”

Here is the statement issued by FDIC Chairman Sheila C. Bair in conjunction with the announcment: 

“First and foremost, bank customers should know that their insured deposits have and always will be 100 percent safe, no matter what. This commitment to depositors is absolute. The decision today is really about how and when the industry fulfills its obligation to the insurance fund. It’s clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem. In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer. This proposal is a vote of confidence for the banking industry’s resilience and will continue to recover its strength as we work through the significant challenges ahead.”

Public comments are due 30 days after publication in the Federal Register.

Entry filed under: Uncategorized.

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