WASHINGTON -- A West Virginia savings bank has won the first round of its lawsuit challenging the way the government sets deposit insurance rates.

The Federal Deposit Insurance Corp. moved in mid-July to strip Doolin Security Savings Bank's deposit insurance after the New Martinsville institution refused to pay its full insurance bill.

Doolin claimed the FDIC was charging the $55 million-asset bank too much.

The FDIC's decision to yank Doolin's insurance was set to take effect at the end of August. But Doolin sued the FDIC, claiming that its risk-based premium system is unfair.

Appeal of Rate-Setting System

The bank asked the U.S. Court of Appeals for the Fourth Circuit to intervene and prevent the FDIC from withdrawing insurance while the case is litigated.

The federal court agreed July 21, so Doolin can continue to operate with insurance while it appeals the FDIC's rate-setting system.

The agency assigns banks to one of nine categories based on its capital and supervisory rating.

The riskier a bank is, the more FDIC charges it. Doolin was slotted into the second-best category and charged 26 cents for every $100 of domestic deposits. But the hank chimed it should be in the best box and charged the lowest rate of 23 cents.

About $32,000 Withheld

Thus, the institution has withheld the 3-cent difference for a year and half, which amounts to about $32,000.

Doolin must post a bond of $32,000 with the clerk of the court by Aug. 10 to cover the insurance assessment in dispute.

FDIC spokesman Alan J. Whitney said the agency was not discouraged by the court's move.

"I don't really think it's unusual for a court to grant a stay in a case like this," he said, noting that the judge has not consider the merits of the case yet.

Briefs from both sides are due at the court on Sept. 6.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.