FDIC Ready to Collect Insurance Premiums by Debiting Funds Directly

WASHINGTON - On Friday - for the first time - the government will use the automated clearing house to collect banks' and thrifts' quarterly deposit insurance payment.

The Federal Deposit Insurance Corp. has been testing the new electronic debit process since March. After three trial runs, the agency whittled errors to just a couple of hundred, mainly due to inaccurate account or routing transit numbers. That's not bad, considering the FDIC is collecting premiums from more than 12,000 insured institutions.

"We're ready to roll," Al Long, an assistant director in the FDIC's treasury branch, said in an interview this week.

In addition to ending insurance payments by check, the FDIC is taking over the job of calculating how much an institution owes. The agency on May 30 mailed bills for deposit insurance in the third quarter to banks and thrifts.

Mr. Long reminded bank and thrift chief executives in a June 16 letter to make sure payments are available for direct debit on June 30.

"Failure to provide funding of the amount shall be deemed to constitute nonpayment of the assessment," Mr. Long's letter reads.

However, in the interview Mr. Long said the FDIC expects glitches.

"We're anticipating there will be some problems," he said. "We'll be pretty easy this time around. We're not going to be ogres."

More than 7,000 institutions have set up ACH accounts to cover their deposit insurance bills, according to Mr. Long. Nearly 3,900 institutions have opted to pay their premiums through a correspondent bank.

Another 963 institutions are paying FDIC invoices through a Federal Home Loan bank, while 211 banks that belong to the Federal Reserve System are paying via Fed accounts, Mr. Long said.

An toll-free number the FDIC set up to field inquiries about the new system receives 150 to 200 calls a day. "We've had to add staff," he said, noting that 13 people operate the phones.

The FDIC first proposed switching to quarterly automatic debits last summer, arguing the change would be cheaper and simpler.

Many banks opposed the loss of control that comes with a direct debit.

"Obviously, the electronic collection is much more efficient than handling checks," Mr. Long said.

The FDIC has been spending $150,000 a year on lockboxes at four sites nationwide. But under the new system, the FDIC will pay the Federal Reserve Bank of Richmond $70 a month to process the debits.

In addition, Mr. Long said the FDIC will no longer have to spend time verifying that every insured institution mailed in a check. Rather, only debits that don't work will have to be investigated.

"This new system is based on exceptions," Mr. Long said. "There's no paper to handle."

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