WASHINGTON Comptroller of the Currency John D. Hawke Jr. floated a plan for fixing the fee disparity between state and national banks during a speech in North Carolina on Thursday.
Conceding that assessing new federal fees on state banks is not a politically viable option, Mr. Hawke suggested instead that the cost of all exams be borne by the bank and thrift insurance funds. (The Federal Deposit Insurance Corp. rebuffed his efforts to include the fee issue in the larger deposit insurance reform debate this week. On Thursday the FDIC made its recommendations to Congress. See story page 1).
Today, with the funds aggregating about $41 billion, and generating earnings of more than $2 billion per year, there would be considerably more funds available to defray the costs of FDIC, OCC, and state supervision than those agencies today spend in total, Mr. Hawke told University of North Carolina law school students.
Working together, and using the present costs of supervision as a baseline, state and federal supervisors could develop an allocation formula that would reflect not only the breadth of responsibilities of the agencies, but the condition, risk profile, size, and operating environment of the banks they supervise, he said.
Mr. Hawke conceded that all agencies would have to be free to impose additional fees, but countered that competitive pressures would keep such fees to a minimum.
The comptroller sees the matter as a fairness issue. He has repeatedly said that the supervisory fee structure within the dual banking system forces nationally chartered banks to subsidize their state-chartered rivals.
National banks pay the OCC for exams. But state banks essentially pay half their supervision costs because they only pay state regulators for every other exam. The alternating review is done free of charge by either the FDIC or the Federal Reserve System.
We estimate that national banks account for 52% of the contributions to the Bank Insurance Fund since the resources of that fund were exhausted in 1991, Mr. Hawke said. Considering that the FDIC spent about $590 million on state nonmember bank supervision in 1999, national banks can be viewed as having contributed about $300 million to the FDICs cost of supervision. This is in addition to the $384 million in assessments they paid to the OCC for their own supervision.
Mr. Hawke also proposed a second option: having the FDIC reimburse national banks for the portion of insurance premiums that covers state bank supervision. Such an approach would get national banks out of the business of subsidizing their competitors with relatively minor impact on FDIC resources, he said.
Acknowledging that calculating that cost could be cumbersome, Mr. Hawke said the FDIC should separate its supervisory costs from its deposit insurance costs anyway to be more efficient and rational in its pricing methods.
Neil Milner, president of the Conference of State Bank Supervisors, said his group is not taking a position on the comptrollers suggestions yet. Its an interesting concept but there are some issues that need evaluating, he said.
A big concern is how such a system would affect the independence of state banks and state regulators, he said. I havent seen the federal government hand out a whole lot of money without telling you what you can do with it, Mr. Milner said.
Mr. Hawke acknowledged his plan is just an outline and asked bankers and other regulators to help flesh it out.
I believe we can develop concrete proposals to overhaul the current system, and replace it with one that supports rather than undermines our ability to achieve common goals, he said.
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