The Federal Deposit Insurance Corp. is unlikely to lower deposit insurance premiums on banks anytime soon, despite an improvement in the agency's finances, the agency's chief told bankers on Wednesday.
FDIC Chairman Martin Gruenberg told attendees at the Las Vegas convention of the Independent Community Bankers of America that the agency is not changing its current premium strategy, even though the Deposit Insurance Fund has grown steadily since going negative at the height of bank-failure activity. Gruenberg said the agency is still on target to hit the minimum level for the DIF required by Congress by the end of this decade.
"By law, the FDIC is required to build up the reserve ratio for the Deposit Insurance Fund to 1.35 percent of insured deposits by 2020. We are now at over 0.4 percent, and we are very much on track to meet this statutory requirement," he said in prepared remarks to the ICBA's annual convention.
"When I mention the progress that has been made, I frequently get the question, 'So, when will we be able to reduce deposit insurance premiums?' The bad news is that premiums will probably not be coming down anytime soon, because we still have a significant way to go to build up the fund to meet our statutory requirement."
Gruenberg also reiterated steps the agency has taken through an initiative launched last year to reach out to the community banking sector. The FDIC hosted a series of feedback sessions with executives, released a comprehensive study about the evolution of community banks and reviewed possible ways to ease the supervisory process for smaller institutions. As part of those efforts, the FDIC instituted a system to streamline the preparation of documents used in examinations.
He said the agency's research shows community banks play an invaluable role in the economy.
"From the standpoint of both filling a critical niche in our financial system and providing access to mainstream financial services in communities all over our country, community banks are in some measure irreplaceable," Gruenberg said. "There is an important public interest from the FDIC's perspective in having a strong, vital community banking sector in the U.S. financial system."
Several bankers reacted favorably to the speech. Kevin Dattellas, chief financial officer at the $654 million-asset Solvay Bank in Syracuse, N.Y., said in an interview after the speech that he appreciated Gruenberg's acknowledgement of community banks' contributions to small business lending. "That shows we are blue collar banks and workers," he said.
Dattellas said Gruenberg's comments on insurance premiums should be expected. "It's a high cost on income statements, but we have to continue to bring the health of the industry back," he said, noting that the banking industry had enjoyed years of low premiums before the financial crisis. "Now we have to pay our share, even though community banks didn't necessary cause a lot of the problems."