WASHINGTON — With insured deposit growth slowing faster than expected, the Federal Deposit Insurance Corp. on Monday decided to delay setting its 2008 premium until March, when yearend totals are to be available.
“Having better real data makes a lot more sense,” said Thomas Curry, an independent member of the agency’s board of directors.
At a public meeting, agency staff members told the board that insured deposits had grown only 0.2% in the third quarter, for an annual rate of less than 1%. In the second quarter insured deposits fell by $11.3 billion.
Those results were not in line with an agency projection that insured deposits would shrink 5% this year. The projection had been used to estimate how much the agency would have to charge for its coverage.
Industry representatives had expected the FDIC to remain on its 2007 course of charging healthy banks and thrifts 5 to 7 cents per $100 of domestic deposits into 2008, but officials said Monday that any decision made this soon would be premature.
“In light of a more significant slowdown in insured deposits this year than we had anticipated, staff would like to take this new information into account and reconsider our outlook for insured deposits and the reserve ratio before the board decides to act,” Diane Ellis, an associate director in the FDIC’s division of insurance and research, said at the board meeting. “There is no legal requirement for the board to set rates for 2008 now.”
Industry representatives — some of whom criticized the agency’s 2007 rates after last year’s enactment of the deposit insurance reform law — applauded the board’s decision Monday, suggesting it is a sign that slowing deposit growth could mean lower premiums in 2008.
“It was the appropriate decision to put off any rate changes until they have better information,” said James Chessen, the chief economist at the American Bankers Association. “The fact that we’ve had two quarters of very slow growth suggests that there may be more quarters like that in the future. When you have two quarters of slowing growth, it is appropriate not to make decisions now about next year. They need to have good information.”
The FDIC traditionally has set premiums twice a year, in November and March. But the February 2006 reform law freed the agency from that schedule. It has the flexibility to set premiums whenever it pleases. Officials indicated that — rather than set 2008 rates as early as Monday — they would wait until next March. Under the reformed system, banks pay premiums at the end of the quarter that comes after the quarter of the assessment, meaning first invoices would not be due until June.
The law gave the FDIC greater authority to raise premiums in good times so it would not have to subject the industry to payment shock if the Deposit Insurance Fund weakened in bad times.
Over industry objections, the FDIC imposed a 2007 premium of 5 to 7 basis points of domestic deposits. If the levy remains at this level, the FDIC has said, it can raise the ratio of reserves to insured deposits back to its traditional target of 1.25% by late 2008 or sometime in 2009, depending on deposit growth. Current premium rates would generate as much as $2.5 billion for the FDIC next year as banks start to use up their portion of a $4.7 billion credit awarded for premiums they paid before 1997.
But industry representatives have urged the agency to proceed more cautiously.
“You’ve had this significant slowdown” in insured deposit growth, “so the reserve ratio is rising faster than predicted,” said Bert Ely, an independent consultant in Virginia. “It means they can cut the premium rate if the slow growth continues.”
Also at the meeting, the FDIC approved a final rule establishing the Basel II capital standards for the nation’s largest institutions. The FDIC was the last of the four bank regulatory agencies required to sign off on the rule to do so.
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Corrected November 6, 2007 at 8:30PM: This story misstated a Federal Deposit Insurance Corp. projection for insured deposits. The agency had expected them to grow 5% this year.