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FDIC Premiums
Two years of major losses dropped the FDIC insurance fund from an all-time high of $52.4 billion going into 2008 to a deficit of $20.7 billion in March 2010. The decline was despite $21.1 billion of premiums, including a $5.6 billion "special assessment."
The large deficit is the result of $103 billion of provisioning for insurance expenses. The FDIC predicts that bank failures will cost $60 billion over 2010-2014 – most of this by the end of 2010.
However, Chairman Bair also forecasted that bank failures will peak this year, and that the insurance fund will reach a nadir in mid-year. Premium assessment rates rose significantly last year and the assessment schedule will rise by three basis points again starting next year. The good news is that Chairman Bair indicated that the insurance fund is expected to recapitalize on the timeline established last September – without additional hikes of the assessment schedule or "special assessments."
On April 13, 2010, the FDIC Board approved for public comment a proposal to change the system for calculating premiums for banks over $10 billion in assets. Click here to see a summary of the proposal.
The Dodd-Frank Act makes several significant changes to the FDIC, including making $250,000 FDIC coverage permanent, changing the FDIC assessment base to assets less tangible equity, and raising the target reserve ratio of the insurance fund
ABA Efforts
ABA has discussed with the FDIC the impact that raising the assessment schedule in 2010 will have on banks, particularly those banks in areas hit hard by recession. ABA has urged the FDIC, instead of raising assessments, to transfer to the insurance fund excess revenues from its Temporary Liquidity Guarantee Program (TLGP). For example, $872 million of surcharge fees have already been shifted from the TLGP Debt Guarantee Program (DGP), as per a change to the TLGP rule supported by ABA. The DGP also earned $10.3 billion in non-surcharge fees, with no reported expenses, and the TLGP Transaction Account Guarantee Program earned $0.6 billion in premiums through 2009. Since excesses in these programs will ultimately be transferred into the insurance fund, the ABA recommends that the FDIC assess how much can be transferred at this time.
At the end of 2009, the FDIC pre-assessed over $46 billion of premiums for fourth quarter 2009 through 2012, raising its available cash to $66 billion. To help banks deal with their large balances of illiquid, non-interest-earning prepaid assessments, at the request of ABA, Promontory Interfinancial Network has created a Prepaid Assessments Marketplace. At no cost, banks can go to the Prepaid Assessments Marketplace website to match buyers and sellers of prepaid assessments.
ABA strongly opposes an FDIC proposal of January 2010 to tie bank premium assessment rates to certain risky employee compensation practices. ABA wrote to the FDIC that the proposal is ill-advised and would set a terrible precedent by allowing the FDIC to substitute its judgment for that of the functional regulator that has more familiarity and understanding of the banking institution's business model, risk tolerance and compensation practices and has more nimble tools to deal with supervisory issues. Moreover, ABA said that the proposal as out of step with ongoing regulatory policy reviews of financial-institution compensation practices, is not supported by sufficient empirical evidence, and is unworkable and burdensome.
Contact for further information: Rob Strand, 202.663.5350
