WASHINGTON — Bankers are challenging the cost of a contentious Federal Deposit Insurance Corp. plan that would require financial institutions to regularly update their insured deposit data, arguing it is much more expensive than what the agency calculated.
In its proposal released in February, the FDIC estimated it would cost an aggregate $328 million — or 83 cents per account — to the large banks required under the plan to better monitor insured deposits.
But industry representatives said that is too low.
"We think they have underestimated the cost," said Rob Strand, a senior economist at the American Bankers Association. "The cost would be pretty high."
The FDIC is asking for the data because it wants faster access to lists of insured deposits in the event of a large bank failure. It estimates that each institution will face an average upfront cost of nearly $8.9 million, in addition to an "ongoing operations" price tag of approximately $80,000.
But Strand and industry observers say the agency's model does not account for the large amount of data the banks would have to ask of customers when evaluating which accounts are insured.
"It's more than just asking about the balance, it's keeping track of all of the information for all of the depositors," Strand said. For instance, "if you and your husband have a joint account," he said, the bank would "have to know yours and your husband's Social Security numbers."
Industry observers agree. "They had to make a lot of very heroic assumptions," said Bert Ely, a banking consultant in Alexandria, Va.
The FDIC says it did everything it could to ensure its calculations are correct. A preliminary version of the proposal was first put up for comment in April of last year. The FDIC asked banks for feedback on its cost estimation, but didn't hear anything back, said Barbara Hagenbaugh, a spokeswoman for the agency.
The latest version of the proposal was published in February and provided a detailed overview of the cost estimation model, which was produced by Deloitte based on data from 36 large institutions. The plan targets companies holding more than 2 million accounts.
"We made a significant effort to understand banks' potential cost of compliance and recently extended the comment period to provide more time for commenters to respond to all aspects of the proposal," said Hagenbaugh.
When the FDIC started received further inquiries — including a Freedom of Information Act Request from the ABA — it posted a 37-page redacted methodology document.
The cost calculation debate ties into a broader complaint large banks have about the plan, which they say is unlikely ever to be of use.
"What the proposal asks for is for these large banks to actually perform the FDIC's role in case the bank would fail," Strand said. "You don't know when a bank's going to fail — so a bank would have to have this information every single day."
But the FDIC argued that the agency needs more accurate, up-to-date information in the event a failure does take place.
"Timely access to insured deposits is critical to maintaining public confidence in the banking system," Hagenbaugh said. "Enhanced record-keeping requirements for institutions with a large number of deposit accounts are needed to facilitate rapid payment of insured deposits to customers if the institutions were to fail."
The model published by the agency revealed how elusive bank account numbers can be. American Express Centurion Bank was listed as having 6.4 million deposit accounts. But in its Dec. 31, 2014, call report referenced in the document, the bank reported only 1.2 million accounts.
It later filed an amendment for that number, the FDIC said, citing two other financial institutions that had made similarly enormous modifications to their deposit accounts number.
Industry representatives are concerned, however, that the proposal will make them uncompetitive with brokers, trust managers and large pooled depositors such as retirement plans.
Under the plan, a depositor can choose to refuse sharing information the banks would need on an account's beneficiaries — but it has to accept the possibility of seeing delays in insurance payments in the event of a failure.
Unless they can make a case that it is not technically viable to obtain the data on an account, banks would have to prove that the depositor refused to share the information — and that's not easy, industry representatives say.
"It's not a simple buy," Strand said. "They have to try to get the information first to demonstrate to the FDIC that they can't get it."
In the process, banks worry that they might lose clients, Strand said. "Do you have to go back to them five times and say, seriously we want you to?"