ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release December 14, 2000 #00-138
E-mail: [email protected]

ACB CALLS ON FDIC TO DEAL QUICKLY WITH EXCESSIVE DEPOSIT GROWTH AND MERGER OF THE FUNDS

Press Release Tools
	E-mail This Press Release
	Printer-Friendly Format

WASHINGTON, D.C. — America’s Community Bankers has called on the Federal Deposit Insurance Corporation to deal quickly with the practice of some firms that are moving billions of dollars from uninsured to insured accounts, and the need to merge the insurance funds.

Responding to the issues raised in the FDIC’s Options Paper, ACB President and CEO Diane M. Casey wrote, “This is a matter of great urgency,” noting that excessive deposit growth “could even trigger an across-the-board premium” because it could cause the deposit insurance funds to fall below their statutory minimum levels. Because both insurance funds — the Bank Insurance Fund and the Savings Association Insurance Fund — are above the statutory minimum, most institutions do not pay a premium. She also said that Congress should merge the funds without delay.

In a meeting with the FDIC, ACB Chairman David A. Bochnowski personally urged the agency to act as quickly as possible. “The FDIC should call on Congress to take up the issues of excessive deposit growth and a funds merger even before it tackles broader deposit insurance reform issues.” Bochnowski is also chairman, president and CEO, Peoples Bank, Munster, Ind.

In addition to these two priority issues, ACB’s comments covered the full range of issues raised in the Options Paper. Under ACB’s ideal scenario, the package of reforms would also include the following elements: a modest increase in regular deposit insurance coverage, rebates of excess reserves, a substantial increase in insurance coverage for retirement accounts and greater flexibility in returning the designated reserve ratio should there be a shortfall.

ACB’s comments were prepared with the assistance of former FDIC Chairman Ricki Helfer, an adviser to ACB on deposit insurance reform issues; a 32-member Deposit Insurance Team established by ACB; discussions with hundreds of ACB members in multiple forums; and views expressed in a member survey.

Insurance coverage. ACB opposed privatizing deposit insurance coverage and strongly supported the FDIC’s current role as insurer. ACB supported indexing coverage limits starting with the 1974 limit of $40,000. This would result in a coverage limit today of between $115,000 and $130,000, depending on the methodology used.

ACB supported a modest increase in coverage provided it is not accompanied by substantial additional insurance premiums. “If unacceptable premium increases are a condition for an immediate increase in coverage, Congress should at least index coverage from the current $100,000 level,” ACB said.

ACB said that most of its members are skeptical that an increase in the coverage limit would result in a substantial increase in deposits, but that it could improve community banks’ funding in some markets. However, the modest increase in coverage supported by ACB “should not require any more than a minimal risk-based premium,” and even doubling the coverage level “would not justify a substantial premium increase on all institutions,” ACB said.

Rebates. ACB Second Vice Chairman D. Russell Taylor said ACB felt strongly that, “Congress should establish a new reserve ratio ceiling, above which the FDIC could provide institutions with risk-based rebates of excess reserves.” Taylor, who is also president and CEO, Rahway Savings Institution, Rahway, N.J., added: “Institutions that pose substantial risk to the insurance system would receive reduced or no rebates, the safest institutions would receive higher than average rebates, and others would receive average rebates.”

The highest-rated institutions would continue to be exempt from premiums, but ACB supported, as part of the complete package, allowing the FDIC to impose a small risk-based premium on all other institutions, even if the insurance fund’s reserve ratio exceeds the minimum.

In measuring risk for premium or rebate purposes, ACB said the FDIC should rely on such objective information as the CAMELS system and Call Reports, and not increased reliance on examiner judgments.

Excess growth. Harry Doherty, chairman and CEO, SI Bank and Trust, Staten Island, N.Y., said that while the ACB Deposit Insurance Team was very concerned about the excessive growth problem, “a special premium should not be imposed on relatively small, de novo institutions for a reasonable period after they are chartered, and should not apply to deposit growth brought about through merger or acquisition.”

Retirement accounts. In recognition of the increasingly important role that retirement savings play in the economy and the pension system, ACB recommended that Congress increase the insurance coverage limit on those accounts substantially.

Recapitalizing the fund. If the reserve ratio falls below the statutory 1.25 percent minimum, ACB said the FDIC should be allowed to spread the recapitalization over a reasonable period of time. Current law requires the FDIC to impose a 23 basis point premium on all institutions to make up the shortfall if it expects the deficit to persist for a year.

A letter by Bochnowski to the FDIC is ATTACHED.

ACB’s Comment Letter is ATTACHED.

(This is the 12/13 Comment Letter to FDIC Re: Deposit Insurance Options Paper, August 2000.)

The comment letter is available on ACB’s website at www.AmericasCommunityBankers.com or by fax by calling Jim Eberle at (202) 857-3145.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

-30-