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 September 19, 2006 #06-54
E-mail: [email protected]

ACB URGES FDIC TO RECONSIDER SEVERAL PROVISIONS OF PROPOSED DEPOSIT INSURANCE ASSESSMENT SYSTEM

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WASHINGTON, D.C. — America’s Community Bankers urged the FDIC today to revise its proposed deposit insurance assessment system so that well-capitalized, well-managed banks can qualify for a lower-than-proposed assessment rate, “free riders” will face an assessment surcharge if they materially dilute the insurance fund’s reserve ratio and Federal Home Loan Bank advances will not be considered “volatile liabilities.”

In comments filed with the agency, ACB said it has “significant reservations” about certain portions of the proposal and urged revisions to avoid possible unintended consequences. ACB had these specific comments:

The assessment floor on Risk Category I for the healthiest banks should be 1 basis point, not the proposed 2 basis points. The ceiling should be maintained at 4 basis points. According to the FDIC, 45 percent of all Risk Category I institutions actually fall below the proposed 2 basis points floor. ACB said a lower floor and a wider spread would allow institutions to fall within the continuous scale for premium assessments.
Fees should be assessed on “free-riders,” those institutions with rapid deposit growth that would materially dilute the insurance fund’s reserve ratio. ACB recommended that the FDIC levy a “growth premium” on top of the regular premium assessments for large institutions that are rapidly growing deposits over a short period of time.
ACB said it “strongly opposes” defining Federal Home Loan Bank advances as “volatile liabilities” in calculating the financial ratio factor for small institutions in Risk Category I. “Advances are an especially stable and reliable form of liability that reduces funding risk,” ACB said. Curtailing the use of FHLBank advances would force institutions to fund loan growth with more costly, volatile wholesale funding sources, thereby reducing profitability and increasing liquidity risk, ACB added.
The system should not discriminate by the age of the institution. The proposal would assess de novo institutions of seven years old or less at the highest premium available in Risk Category I. ACB said new institutions should be assessed on their risk profile, not their age.
The proposed bifurcated system for assessing premiums between large and small institutions should be more closely aligned. “ACB does not believe that there is a need for two such widely differing systems,” ACB said. For example, ACB supports the use of market data when available for all institutions, but not to the complete exclusion of other elements, such as financial or supervisory data.
The FDIC should be required to provide a notice and comment period when it wishes to adjust assessment rates under any circumstances. “We strongly believe that the banking industry should be able to comment on a matter that impacts all depository institutions,” ACB said, “even changes as small as 1 basis point.”

Click here to read the comment letter.

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.

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