The Federal Deposit Insurance Corp. moved last week to refill its Deposit Insurance Fund. In a step that drew mixed reviews from bankers, the FDIC’s board approved a special assessment of 20 basis points per $100 of deposits on the industry, effective June 30; the assessment will be collected on September 30. The interim rule also allows the FDIC to impose an “emergency assessment of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance.” Meanwhile, the board adopted a final rule changing the assessment for best-risk institutions from 12-26 cents to 12-16 cents per $100, effective April 1. And the board extended its goal for raising the DIF reserve ratio to 1.15 percent from five year to seven years “in recognition of the current strains on bank and the financial system and the likelihood of a severe recession,” according to the agency.
Today there is “$19 billion available in the fund,” says FDIC spokesman Andrew Gray, while “$22 billion has been set aside for estimated losses on failures anticipated in 2009.” The DIF has declined to a 25-year low, while the “fund reserve ratio declined from 0.76 percent [on September 30, 2008] to 0.40 percent at year end,” Gray adds.
The premium hikes are “very significant and will pose an extra burden on every bank,” according to American Bankers Association president and CEO Edward L. Yingling. Lending will be hurt. But ABA members “remain optimistic that [the] FDIC’s cost projections over the next few years may be too high, particularly given the significant economic stimulus that Congress recently set in motion.” If that happens, bankers hope for a pullback in premiums. In any case, the “ABA and state bankers associations have formed a special task force to examine ways to mitigate the effects of the FDIC’s harsh 20-basis-point emergency special assessment on banks,” according to the ABA website.
The Independent Community Bankers of America was less than thrilled by the premium move, too. “Once gain, Main Street community banks that didn’t participate in the high-risk practices that led to the current economic crisis are being asked to pay for the sins of Wall Street,” stated Camden R. Fine, president and chief executive officer of the ICBA. He complained that “community banks are being kicked in the teeth by sharply higher assessments,” and asked the FDIC to “change the structure of the assessment base and be permitted to levy a systemic risk premium on the too-big-to-fail institutions that helped trigger the problems that led to the fund being depleted.”
On Friday the agency stepped in as receiver for $238.3 million-asset Security Savings Bank in Henderson, Nev., and $232.9-million Heritage Community Bank in Glenwood, Ill. Las Vegas-based Bank of Nevada took on Security Savings’ two branches, along with deposits of $175.2 million and around $111.3 million in its assets. MB Financial Bank, in Chicago, Ill., absorbed Heritage’s four branches and $218.6 million in deposits. MB Financial will also purchase $230.5 in the failed bank’s assets at a $14.5 million discount, and entered into a loss-sharing arrangement with the FDIC covering $181 million of those assets. The two failures will make a $100.7-million dent in the DIF.
The FDIC has also closed the sale of $1.45 billion of residential and commercial real estate loans from the failed First National Bank of Nevada in two private/public partnership transactions with Diversified Business Strategies and Stearns Bank NA. FDIC initially retains an 80 percent stake in the assets, which eventually falls to 60 percent. Expenses and income will be shared proportionally.