WASHINGTON — The financial industry is fractured over a Federal Deposit Insurance Corp. plan to require big banks to temporarily pay more in deposit insurance premiums, with small banks lobbying to force bigger payments over a shorter time frame and many large ones wanting to stretch it out.
The FDIC unveiled a plan in October that would impose a premium surcharge on large banks for two years. But community bankers want that time frame cut in half.
"We think a more condensed system would be … much better," said Christopher Cole, the executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
At issue is a provision in the Dodd-Frank Act that requires the FDIC to increase the Deposit Insurance Fund's ratio of reserves to insured deposits to 1.35% by 2020, while ensuring that big banks bear the brunt of reaching that level once the fund reaches 1.15%, a threshold it is expected to hit soon. But the FDIC's plan would reach the 1.35% target much sooner, in roughly two years.
Under the plan, banks with more than $10 billion of assets would face a 4.5-basis-point annual surcharge on assessment fees, which could kick in as early as this quarter. Smaller banks, meanwhile, would receive a reimbursement credit for their premiums once the fund reaches 1.4%.
That has spurred disagreements among large and small banks. The ICBA wants big banks to pay the surcharge over a one-year period, so that community banks would get their assessment credits back faster.
"Besides the fact that the DIF would reach a stronger funding position more rapidly, small banks would have fewer credits to deal with and could take advantage of the credits much sooner," Cole wrote in a Jan. 5 letter to the agency. "Assuming the surcharge commenced during the second quarter of 2016 and the DIF reserve ratio of 1.4% was reached soon after the end of the surcharge, under our alternative, community banks could start using their credits as early as the fourth quarter of 2017."
But groups that represent large banks are calling for the exact opposite.
The Clearing House Association, the Financial Services Roundtable and the American Bankers Association filed a joint letter Jan. 5 arguing that the FDIC should stretch out the surcharge period. Instead of trying to raise the reserve ratio to its mandated level within eight quarters, the letter says, the agency should extend it to 2020 — the statutory deadline. They note that Congress has already extended the deadline on its own prior to the Dodd-Frank Act.
"The clear intent of reiterated extension of the deadline was to allow time for banks to recover from the deep recession and build capital to support their soundness and ability to lend," the groups wrote. "Taking advantage of the full period for surcharge assessments would be consistent with this intent."
The groups called for an annual surcharge of 2.25 basis points for 14 quarters, half of what the FDIC is suggesting for a two-year period.
Yet stretching out the timetable would also delay when small banks receive assessment credits, estimated to total $900 million.
"It's a trade-off — whether they'd like to have less money sooner or more money later," said Rob Strand, a senior economist at the ABA, noting that the delayed credits would also grow in the FDIC's securities portfolio.
Other stakeholders are calling for different ways to spread the burden.
BB&T, of Winston-Salem, N.C., has advocated for a rip-off-the-Band-Aid approach to the surcharge payment.
"A one-time assessment of an amount slightly less than that needed to build the DIF to 1.35% would immediately strengthen the fund while also allowing institutions the benefit of interest earned on the DIF," Cindy B. Powell, the corporate controller at BB&T Corp., said in a Jan. 4 comment letter.
Even the ICBA hasn't gone that far, saying a one-time charge would hurt big banks too much.
"The one-time system would be quite an impact on some of the largest banks," Cole said. "Let's do a middle ground."
BB&T further argued that the surcharge should not be based solely on asset size, but should also account for criteria such as risk. The Independent Bankers Association of Texas also suggested raising the asset-size standard, from $10 billion to $50 billion.
The Dodd-Frank Act "does not require that all of those institutions in excess of $10 billion in assets make up the difference," Robert E. Feldman, the Texas group's executive secretary, said in a Nov. 5 comment letter. "It would be a stretch to consider a bank with $11 billion — or even $75 billion — in assets as either 'too big to fail' or 'systemically important.' "
The ABA, the Roundtable and The Clearing House have also advocated for a system that would allow small banks to trade their assessment credits.
Cole said trading credits might "wouldn't be a bad idea" under an eight-quarter schedule, but could prove "quite complicated."
The ICBA's proposal, he added, "makes it a little easier and accomplishes the same goal, which is, community banks would be reimbursed by credits."