Sense on Cents

How secure do you feel about your bank deposits? They are insured, right? Well, how secure would you feel about your health insurance if your provider was not collecting badly needed premiums?

I am not pulling any fire alarms, but a recent announcement from the FDIC in regard to its insurance premiums collected from depository institutions speaks volumes about the current state of our banking system and our overall economy.

Recall that the FDIC’s insurance fund was exhausted late last year (Sense on Cents commentary: FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance). To replenish its fund, the FDIC had banks prepay estimated assessments of $45 billion, and also imposed higher premiums to rebuild the fund.

While Wall Street banks were in a position to pay out approximately $140 billion in 2009 bonuses, we now learn that the banking system is not in a position to begin paying the higher premiums to the FDIC.

What is going on here? American Banker sheds insights on this overlooked story in writing, FDIC to Postpone Boosting Premiums Until Economic Picture Clears:

The Federal Deposit Insurance Corp. said Tuesday it would delay raising premiums until the economic outlook gets clearer and Congress finalizes changes to the system as part of regulatory reform.

The agency’s board voted to maintain assessment rates at their current level, despite the fact that they are not projected to restore the FDIC’s battered reserves until three months after a statutory deadline of Jan. 1, 2017.

The current restoration plan for the Deposit Insurance Fund would not bring reserves back to 1.15% of insured deposits until March 31, 2017, a quarter later than allowed under current law, but officials said the agency should defer any premium increase until industry projections are more certain, and banks could absorb higher rates more easily.

Under the current restoration plan, healthy banks pay between 12 cents and 16 cents per $100 of domestic deposits, while troubled banks can pay as much as 45 cents. Prices for all banks will uniformly rise 3 cents starting in January 2011. Additionally, a pending FDIC proposal to reform its risk-based pricing formula would expand the range to between 10 cents and 50 cents this year, and between 13 cents and 53 cents next year.

A few comments and questions:

1. Does it surprise you and/or concern you that the fund will not be replenished to a required level of 1.15% of deposits until 2017?

2. Does it surprise you and/or piss you off to hear our Washington wizards speak about how successful the TARP was in returning banks to economic health? If they are so healthy, then why don’t they start paying the needed higher insurance premiums now?

3. Does it surprise you and/or piss you off that the largest depository institutions in our country (Bank of America, Wells Fargo, JP Morgan Chase, Citigroup) pay out gargantuan bonuses while not paying the needed premiums to restore the Deposit Insurance Fund?

Say what you want, but in my opinion, all of these realities are a function of a well established “too big to fail” mentality and practice.

Navigate accordingly!

LD

For those interested in the official press release from the FDIC: FDIC Board Adopts Final Rule Extending TAG Program and Maintains Current Deposit Insurance Assessment Rates; (June 22, 2010)

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This entry was posted on Thursday, June 24th, 2010 at 9:31 AM and is filed under FDIC, General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.