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|OIB's White: FDIC assessments hit banks hard|
The Federal Deposit Insurance Corporation has dramatically raised the amount of money banks must pay to fund the FDIC, which has been hit hard by numerous bank failures throughout the country over the past year.
That's a concern for banks including the many community banks in the region, which, by and large, are deemed healthy by FDIC examiners.
Clyde White, chairman of the board of directors at Ouachita Independent Bank, has spent years working with Louisiana Bankers Association and American Bankers Association lobbying the Legislature and Congress to approve legislation to make it easier for small community banks to survive. Accordingly, White said the increased fees the FDIC levied have been costly for his bank and others like it.
Earlier this year, the FDIC increased the amount of money banks were required to pay for their annual assessment, which historically was based on a certain percentage of a bank's deposits.
In June, because the FDIC's fund balance had dwindled, FDIC charged banks a special assessment, White said.
"That cost us $200,000, boom, just like that," White said. "That was over and above what we were already paying, and we were concerned they would issue another special assessment by the end of the year."
"Banks are hollering and saying, 'That comes right off our bottom line and right out of our profit,'" White said. "I'm sure it would cost some banks to have a losing year."
He said if the FDIC levied another special assessment at the end of the year, Ouachita Independent Bank would have paid $800,000 in 2009 just in FDIC assessments.
Last year, OIB paid $300,000 in FDIC assessments and $200,000 in 2007.
"That's a tremendous amount of increase," White said.
Now, the FDIC wants banks to pay three year's worth of assessments up front, which could generate roughly $45 billion for the FDIC's insurance fund.
That's a move White supports.
"They will pre-charge banks for the next three years, and they'll figure out the amount based on what the deposits are at the end of the year," White explained. "For most businesses, they would say that's crippling, but for banks, that's cash going out, no question about it, but we won't expense it until it's earned. So we will book that as a prepaid asset, so it doesn't hit our profit and loss statement until those years come about.
"So if we have to pay $2 million, then only one-third of that will hit in 2010, another third in the next year and another third in the next year. It's just cash going out for us, but it won't all be expense.
"I'm glad they're taking this route because I would much rather have prepaid three years' worth of assessments than to have a huge special assessment that hits at the end of this year, and every bit of that would hit our profit and loss statement for this year."
However, this move could adversely affect some banks because they might not have enough cash available to make the payments to FDIC. Those banks would have to acquire funds (deposits) to pay the assessment fees.
Also, White said the change could negatively affect some banks since they will have less cash to loan to customers.
"Right now our bank is very liquid in that we have a lot of excess overnight cash, and we're earning only a quarter of a percent on it," White said.
Another issue of concern is if the country has more bank failures than anticipated.
"If within a year and a half they say, 'All that money's gone. You've got to send is some more money.' That won't be good," White said. "That's a real possibility."
Around 100 banks have already failed this year, and White said there's been talk of an additional 500 more bank failures over the next several years.
"Luckily there's been none in Louisiana," White said. "I'm not aware of any that's in danger of failure."
"People here should be comforted by the fact that the banks in northeast Louisiana are pretty solid," he added.
Congress created the FDIC in 1933 to maintain stability of the nation's banking system after thousands of banks failed during the Great Depression.
The FDIC's insurance fund has decreased to roughly $10 billion due to the string of bank failures in 2009. That's the lowest the insurance fund has been in more than 15 years.
The FDIC insures deposits in banks and thrift institutions for at least $250,000.
The FDIC is funded by "premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in the U.S. Treasury," according to the FDIC website. It receives no congressional appropriations.
The FDIC insurance fund is required to have 1.25 percent of all the insured deposits in the country.
"As long as they've got that level in the fund, which is billions of dollars, everything is fine," White said. "Well, when these banks started failing, the fund started shrinking."