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Both Diebold Inc. and NCR Corp. have said the poor economy likely would cause shipments of ATMs to regional and community banks and credit unions to plunge this year.
But new legislation approved by Congress might actually spark ATM sales to smaller banks, contends one analyst who follows the industry.
The legislation would mitigate the need for the Federal Deposit Insurance Corp., which insures federally chartered bank deposits, and the National Credit Union Administration, which insures deposits of federally chartered credit unions, to levy large special assessments on their member institutions.
The threat of huge assessments has been a key factor preventing regional and community banks and credit unions from buying ATMs, Gil Luria, an analyst for Wedbush Morgan Securities, contends in an analyst report.
Top executives of two community banks agree that the special assessments have caused them to be concerned about capital expenditures, but they have not linked those concerns to ATM purchases.
"A reduction in earnings gives you cause to think about any equipment expansion," William A. Loving Jr., executive vice president and CEO of Pendleton Community Bank in Franklin, W.Va.
Noah W. Wilcox, president and CEO of Grand Rapids State Bank, a family-run bank in Grand Rapids, Minn., does not believe the FDIC special assessment is categorically linked to banks' decisions not to buy ATMs.
"We are not buying ATMs this year, and it is not because of the special assessment. The special assessment will cause community banks to prioritize their capital expenditures," Wilcox says.
FDIC Chairman Sheila C. Bair announced earlier this year a special assessment on banks' domestic deposits to raise $15 billion for the FDIC's insurance fund. The special assessment also would raise FDIC's statutory insurance minimum to a $1.15 per $100 over seven years. At the end of 2008, it was 40 cents per $100, Barr says. The statutory minimum has declined because the large number of bank failures. Bank failures cost the FDIC $18.9 billion in 2008 and $5.3 billion so far this year, Barr says.
Special assessment payments are due Sept. 30, David Barr, a spokesperson for the FDIC, tells ATM&Debit News.
On Tuesday, the nation's bankers and credit unions received some good news.
The House voted 364 to 54 to pass the Senate bill that would allow the FDIC and the National Credit Union Administration to borrow more money from the U.S. Treasury.
The U.S. Senate approved the same bill May 6, and President Obama may sign the legislation tomorrow.
In a news release, the Independent Community Bankers of America said the legislation paves the way for the FDIC to reduce the proposed special assessment that would have "impeded community banks' ability to lend to their communities during these economically challenging times."
Bair said if Congress passed the legislation and President Obama signed it, it would lead to a "meaningful reduction in the special assessment."
The legislation would allow the FDIC to borrow up to $100 billion and receive $500 billion in emergency funding, Barr says.
The legislation also would give the National Credit Union Administration authority to borrow $6 billion, up from the current $100 million, Cherie Umbel, a spokesperson for National Credit Union Administration, wrote in an e-mail message.
The bill also would provide the association with emergency borrowing authority for up to $30 billion, Umbel says.
The FDIC board is scheduled to meet Friday to discuss whether to assess banks 10% per $100 in domestic deposits or 20% per $100 in domestic deposits. The board also could settle on another figure.
If the FDIC assesses bank deposits at 20% per $100 in domestic deposits, Grand Rapids State Bank's share of the special assessment will be $250,000, Wilcox says.
"It is an unbudgeted bottom line hit," Wilcox says. "We don't have the option of paying the special assessment over time. You have to pony up the cash at one time." There was no special assessment last year.
The National Credit Union Administration has proposed a special assessment of $5.9 billion.
The National Credit Union Administration estimated that its assessment would push as many as 50% of its credit unions into a loss this year, Luria wrote.
"We believe that the special assessments on banks and credit unions announced this year have contributed greatly to the lack of willingness by these community financial institutions to spend on ATMs," Luria wrote. "We believe that the announcement of these assessments in January and February, after bank budgets were already set, significantly threatened many banks' capital position and effectively froze their budgets."
Luria contends the FDIC's special assessment is a regressive tax because it would have a more-devastating effect on regional and community banks than on larger financial institutions.
This is one issue in which Wilcox and Luria agree.
"The special assessment applies only to domestic deposits, which are 95%, 96% or 97% of community banks' assets," he says. "At Citibank, domestic deposits are 15% of their assets. They have offshore deposits and other assets, which are not subject to the special assessment. There is a disproportionate burden on community banks."Luria contends the legislation, if signed into law, would help unfreeze spending. ATM
