WASHINGTON — The Federal Deposit Insurance Corp., already dealing with IndyMac Bancorp Inc.'s glut of Federal Home Loan bank advances, signaled Tuesday that it plans to charge higher premiums next year for banks that rely on advances and other secured debt.
"We want more sources of funding, and secured liabilities are an important source of funding, but that source of funding brings in no assessment revenue for us, and it does definitely impact our cost if we have to take an institution over because it gets into trouble," FDIC Chairman Sheila Bair said at an open board meeting.
The board had asked for comment on whether such liabilities should be capped or face higher assessment charges in its proposed guidelines for banks using covered bonds.
Though it approved a slightly changed version of the April proposal Tuesday, the agency said a clampdown on secured debt was not needed immediately.
Instead, FDIC officials — confronting IndyMac's high resolution costs, resulting in part from its $10 billion of advances — said they could add advances as a risk factor to the agency's pricing system when they meet in September to decide premiums for next year.
"As we've recently seen, the liabilities structure of an institution can definitely have an impact on our resolution cost," Ms. Bair said. "I don't think this should impact normal use of secured liabilities, but certainly disproportionate use may be something that we do want to factor into our insurance premiums. I anticipate that we will be bringing that to the board later this year."
John von Seggern, the president of the Council of Federal Home Loan Banks, which lobbies for the Home Loan Bank System, urged caution in whatever steps the FDIC takes.
The decision not to impose requirements as part of the covered bond guidelines "demonstrates that they understand how important liquidity is to the marketplace," Mr. von Seggern said. "When they look at this issue again, I hope that they will take into consideration how important liquidity has been over the last several months."
When the Office of Thrift Supervision closed IndyMac, the third-largest institution ever to fail, last week, it had about $32 billion of assets and a third of its funding came from advances.
Secured liabilities such as advances and covered bonds complicate the FDIC's resolution work. In the case of IndyMac, a lot of the assets the agency could otherwise sell to offset insurance costs have been pledged to the Home Loan Bank of San Francisco.
In addition to the covered bond policy, the FDIC board also approved final guidance outlining the supervisory review process for assessing a large bank's capital adequacy under the Basel II reforms. The other banking agencies approved the guidance as well on Tuesday.
The review process, known as Pillar 2, is one of three pillars that make up Basel II's advanced approach, which the nation's dozen largest banks must follow.
The final guidance instructs each bank on the discretion examiners can use in raising an institution's capital relative to its risk.
The covered bond guidelines open a door for U.S. banking companies to a form of liquidity widely popular in Europe. Among U.S. companies, only Bank of America Corp. and Washington Mutual Inc. have issued such bonds, and only B of A has offered them here.
The FDIC plan removed what was seen as a hindrance to the liquidity source. Previously creditors were required to wait at least 90 days after a bank failure to seize collateral, but the FDIC plan created an exemption in certain cases for covered bonds, in which holders now can seize collateral as early as 10 days after an FDIC receivership.
In the final guidelines, the agency resisted industry pressure to expand eligibility for the bonds. The agency kept a requirement that only high-quality loans underwritten to their fully indexed rate could be in a pool, as well as a cap limiting covered bonds to 4% of liabilities.
Yet the agency increased the term limit for bonds that are covered by the policy from 10 to 30 years, and it clarified that bondholders should receive the outstanding principal on their bond plus interest that had been accrued at the point the FDIC took over.
