Hope ‘n Change has made a fetish out of bank-bashing, along with the loathsome Barney Frank and others. But of the thousands of banks in America, most are solvent and making do – even though demand for borrowing has dried up. Their profits are not great, but they’re sufficiently capitalized to weather the storm. This is particularly the case with local banks, which never engaged in sub-prime lending and have exercised commendable prudence.
But now the FDIC is going to wipe out the profits of thousands of banks. As reported yesterday by Bloomberg, the FDIC is ordering a ‘one-time assessment’ to replenish the FDIC insurance fund – which is going to disappear by summer. This confiscation has understandably enraged the community bankers, who will see most of their slender profits disappear as a result:
Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview.
“I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.
“The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” Bair wrote. “We did not want to impose large assessments when the industry and economy are struggling. We searched for alternatives but found none better.”
The agency, which has released the change for 30 days of public comment, could modify the assessment to shift the burden to the large banks “that caused this train wreck,” Fine said. “Community bankers are feeling like they are paying for the incompetence and greed of Wall Street,” he said.
Alas, the FDIC has said that it can’t ‘discriminate’ against institutions according to their size. What a crock. This is simply massive incompetence and will weaken or destroy the very banks that are best positioned to lend in the local community.
I spoke yesterday with a friend who is VP of commercial lending at a well-run state-chartered savings bank. He said that this assessment will wipe out 50% of the bank’s profit, which was not great to begin with. In case you’re curious about what an official FDIC communication looks like, here’s the letter received by my pal announcing the rule change for the ‘one-time assessment”.
Deposit Insurance Assessments
Final Rule on Assessments; Amended FDIC Restoration Plan; Interim Rule on Emergency Special Assessment FIL-12-2009
March 2, 2009Summary: On February 27, 2009, the FDIC: (1) adopted a final rule modifying the risk-based assessment system and setting initial base assessment rates beginning April 1, 2009, at 12 to 45 basis points; (2) due to extraordinary circumstances, extended the period of the Restoration Plan to seven years; and (3) adopted an interim rule with request for comments imposing an emergency 20 basis point special assessment on June 30, 2009, which will be collected on September 30, 2009, and allowing the Board to impose possible additional special assessments of up to 10 basis points thereafter to maintain public confidence in the Deposit Insurance Fund.
Highlights:
· Risk-Based Assessments for Risk Category I: The final rule: (1) introduces a new financial ratio into the financial ratios method applicable to most Risk Category I institutions that includes certain brokered deposits above a threshold that are used to fund rapid asset growth; (2) revises a large bank method for a large Risk Category I institution with long-term debt issuer ratings; and (3) broadens the spread between minimum and maximum initial base assessment rates for Risk Category I institutions.
· Adjustments to Assessment Rates: The final rule provides for the following adjustments to an institution’s assessment rate: (1) a decrease for long-term unsecured debt, including most senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) an increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I institutions, an increase for brokered deposits above a threshold amount.
· Amended Restoration Plan: Due to extraordinary circumstances, the FDIC extended the time within which the reserve ratio must be restored to 1.15 from five to seven years.
· Emergency Special Assessment: The interim rule imposes a special assessment equal to 20 basis points of an institution’s assessment base on June 30, 2009, and provides for possible additional special assessments of up to 10 basis points to maintain public confidence in the fund.
Continuation of FIL-12-2009
Distribution:
All FDIC-Insured InstitutionsSuggested Routing:
Chief Executive Officer
President
Chief Financial Officer
All this bureau-speak means the potential ruin for hundreds – if not thousands – of banks that the nation desperately needs for local finance.
What are these people thinking?
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