WASHINGTON — When the Federal Deposit Insurance Corp. sets 2009 premium rates on Tuesday, it is expected to broaden the range of prices it charges healthy banks.
The agency also is planning to propose changes in its risk-based pricing system — first adopted in 2006 — to cover growing losses from an increased number of bank failures.
Risk factors to be added would prompt higher premiums for institutions that rely heavily on brokered deposits and secured liabilities, including Federal Home Loan bank advances. Both funding sources impose higher costs on the FDIC in a resolution.
Industry representatives are urging the agency not to penalize too many institutions through changes in its pricing system. They argue that, though some institutions abused funding sources to fuel loan growth, most in the industry did not.
"The typical average user of either advances or brokered deposits should not be penalized at all," said Karen Thomas, the director of government relations at the Independent Community Bankers of America. "It shouldn't impact their premium."
Healthy banks now pay 5 to 7 cents per $100 of domestic deposits. FDIC officials would not reveal the new premium structure, but outsiders were predicting that the 2-basis-point range could double, and some analysts have predicted that healthy banks could pay a premium as high as 15 cents. Riskier institutions would pay even more.
Industry opposition to higher premiums has softened as more banks have failed or been forced into mergers with stronger partners.
"In the past," we "definitely came out against a 'saving-for-a-rainy-day' situation, mainly because we never thought the situation would be as dire as it is right now," said Melissa Netram, the director of regulatory affairs at the Financial Services Roundtable.
"It's a completely different situation right now with the market. … From what we've heard from some of our members," she said, "they know assessments are going to increase, … and they're OK with that because of the current market situation."
Hugh Bartels, the president of ReliaBank Dakota, a $119 million-asset unit of Big Sioux Financial Inc. in Estelline, S.D., said higher premiums "will have an effect in our market, and we'll have to find a way to pass that on."
Still, he said, the industry's contribution to keeping deposit insurance stable is crucial.
"We've got to step up and pay our premium to keep the fund and to keep confidence up," Mr. Bartels said.
By law, the FDIC must raise premiums to replenish the Deposit Insurance Fund after a string of failures has drained its reserves. The agency has five years to raise its ratio of reserves to insured deposits — now 1.01% — to the statutory minimum of 1.15%.
The American Bankers Association has consistently argued that the FDIC should take the full five years to rebuild its reserves, but in an interview Friday, its chief economist, James Chessen, shifted the focus.
"The lead principle for ABA and the banking industry is that the industry is fully prepared to step up to the plate and do what's required to make sure the FDIC is financially secure," he said. "That's the dominant theme. We've heard that over and over again from our bankers."
In an interview Thursday, FDIC Chairman Sheila Bair said the agency intends to "take a measured approach.
"But we think it's important to maintain confidence in the fund and the industry," she said. "In our conversations with the industry, I think most of the responsible leaders recognize we need to do this. There may be disagreements on particulars — we will have a comment period and robust discussion in the industry."
The July 11 failure of $32 billion-asset IndyMac Bancorp and a string of smaller closures have taken a bite out of the insurance fund. In the second quarter, the agency reserved $10 billion for losses — primarily due to IndyMac — and its reserves declined 20%, to $45 billion.
But the turmoil of recent days has made Indymac's costly failure seem like a distant memory. The agency has put out one fire after another, first resolving Washington Mutual Inc. with a sale of its banking operations to JPMorgan Chase & Co. and then completing an assisted sale of Wachovia Corp.'s banking business to Citigroup Inc. (The latter deal was called into question Friday when Wells Fargo & Co. announced a deal to buy all of Wachovia.)
"The reason that you have the recapitalization plan is because we've had a huge downpour beyond anybody's imagination," Mr. Chessen said.
"This is the 40-year-flood kind of thing."
