Treasury likes it, the Federal Deposit Insurance Corp. likes it, and the banking industry likes it—that is, S. 541, introduced last week by Sen. Chris Dodd (D-Conn.) The bill would permanently increase the FDIC’s ability to borrow from the Treasury for its Deposit Insurance Fund, raising the cap to $100 billion from $30 billion, the limit set back in 1991. The Depositor Protection Act would also temporarily allow the FDIC to borrow up to $500 billion after consultations with Treasury, the Federal Reserve, and the President.
FDIC chairman Sheila Bair voiced enthusiasm in a letter to Dodd, noting “the FDIC believes it is prudent to adjust the statutory line of credit proportionally to leave no doubt that the FDIC can immediately access the necessary resources to resolve failing banks and provide timely protection to insured depositors.” Passage of the increased borrowing ability “would give the FDIC flexibility to reduce the size of the recent special assessment, while still maintaining assessments at a level that supports the DIF with industry funding.”
The American Bankers Association supports the higher ceiling on borrowing. According to ABA president and chief executive officer Edward L. Yingling the increase is “reasonable given that total bank deposits are now triple what they were in 1991,” and the cut in premiums proposed if the bill becomes law “is important but the extra burden remains, especially when viewed in light of regular premium assessments that are substantially higher than they were less than a year ago.”
And the Independent Community Banks of America praises the FDIC’s plan to reduce the special assessment. “Scaling back the assessment is a good first step,” states ICBA president and CEO Camden R. Fine, “but more needs to be done….Main Street community banks did not trigger the current economic crisis and should not have to shoulder a disproportionate assessment burden for those who did.” The group proposes assessing fees on the basis of assets rather than deposits alone, as well as a systemic risk premium on large banks.
The day after the bill was introduced, in what has become an almost weekly ritual, the FDIC stepped in for the 17th time this year as a guarantor of the depositors. Last Friday the agency struck an agreement under which Livonia, Ga.-based Northeast Georgia Bank assumed the $161 million in deposits and the four branches of failed Freedom Bank of Georgia, in Commerce, Ga. Northeast Georgia Bank will also $167 million of Freedom’s $173 million in assets at a $13.65-million discount, and with a loss-sharing agreement with the FDIC. The DIF will take a $36.2-million hit.