WASHINGTON - The 10 largest banks and thrifts are well positioned to bypass a potentially significant premium charge next year by the Federal Deposit Insurance Corp., according to data released Thursday by the agency.
But some other large fast-growing institutions - such as ING FSB, Merrill Lynch USA, and Countrywide Bank - may not be so fortunate.
Though the FDIC warned last week it may charge premiums next year between 4.5 and 12 basis points, most banks will get a credit they can use to offset any future assessments. For the first time Thursday, the FDIC offered on its Web site a look at preliminary estimates of the credits, and provided American Banker with a list of those institutions that got the highest amount.
The results show that eight of the top 10 institutions ranked by assets will receive a credit large enough to offset any premium lower than 7 basis points. Some could handle substantially higher premiums. For example, the $568 million credit for Bank of America Corp.'s primary Charlotte subsidiary could withstand a 10-basis-point premium, while the $143 million credit for Cincinnati's U.S. Bank, a unit of U.S. Bancorp, would equal roughly 12.5 basis points, according to FDIC data.
The credit was included as part of a deposit insurance law enacted in February and is based on an institution's share of the funds at yearend 1996, the last time most banks paid premiums. How much the credit benefits a bank depends on its deposit insurance assessment base at the time the FDIC charges premiums. (The agency does not publicly release such a figure, but it is roughly equivalent to a bank's level of domestic deposits.)
Ultimately, the credit formula benefits those institutions with only modest deposit growth since 1996 and those institutions, such as Bank of America, that have acquired extra credits along with the purchase or merger of other institutions.
But the roughly 1,400 institutions formed since 1996 receive no credit, and others that have grown at a good clip since that time receive little benefit from it.
For example, Merrill Lynch USA, an industrial loan company in Salt Lake City that is the nation's 24th-largest financial institution by asset size, held $491 million of domestic deposits at the end of 1996. After Merrill Lynch & Co. began sweeping brokerage customer accounts into the ILC and a sister bank in New Jersey, the ILC's domestic deposits grew exponentially, reaching $52.8 billion by yearend 2005.
That leaves Merrill Lynch USA with a $696,000 credit, which would withstand about a tenth of a 1-basis-point premium. That would leave the bank paying all but a fraction of any FDIC premium.
Other fast growers are in similar straits.
Countrywide Bank in Alexandria, Va., will receive a $70,000 credit based on the $49.4 million of deposits it held at yearend 1996, according to the FDIC's preliminary estimates. But the Countrywide Financial Corp. unit held $39.6 billion of domestic deposits at the end of 2005, and its credit would equal only 0.02 basis points.
ING FSB in Wilmington, Del., which started after 1996, would receive a $54,000 credit from its 2000 acquisition of Reliastar Bank in St. Cloud, Minn. The thrift has aggressively sought deposits since that time, and held nearly $40 billion at yearend. Its credit would only equal 0.01 basis points.
Some industry representatives said such a low credit for fast-growing institutions is justice. They complained loudly several years ago when Merrill Lynch and other so-called "free riders" began sweeping deposits into the system, and helped lower the Bank Insurance Fund's ratio of reserves to insured deposits. Industry officials said all banks would pay premiums because of the deposit growth of a handful.
"There is a modest victory in this," said Diane Casey-Landry, the president of America's Community Bankers. "The whole idea was to give the credit to people that recapitalized the funds."
The big winners in the FDIC's credit giveaway include those that have sold large amounts of deposits since 1996. Institutions such as Mellon Bank in Pittsburgh, Pa., and Royal Bank of Scotland's Citizens Financial Group Inc. in Providence, R.I., have been fighting over whether the credit should be given to the buyer or seller of deposits in branch sales. The FDIC proposed last week to give credit only to the seller, though it has asked for comment on alternative plans.
The decision leaves Mellon Bank, which sold $13 billion of deposits to Citizens in 2001, with a $35.3 million credit, but a considerably reduced assessment base. The FDIC estimated its credit would withstand 42 basis points of premiums, suggesting that Mellon will not be paying premiums again for several years.
That sort of outcome is liable to leave buyers in large branch sales unhappy, observers said.
"That may end up in litigation before this is over," said Bert Ely, an analyst in Alexandria, Va. "I suspect there will be other cases like that too."
