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The Federal Deposit Insurance Corp.’s annualk charge, paid in quarterly increments, has increasexd sharply — from 5 cents to 12 cents for evergy $100 in insured deposits — to compensate for bank failureds acrossthe country. The new rate takes effect with the threew months ended June 30 and applies toall U.S. banks, though not to credig unions. Also, the FDIC’s board is scheduledr to vote May 22 ona one-time assessmengt to be levied across the bankinf industry.
The one-time charge, designed to replenisjh the FDIC’s depleted insurance fund, was not determined by However, the board originally proposed charging 20 centzs onevery $100 of deposits that banks “Banks are taking two hits and it’s a big said Pennsylvania Bankers Association President and CEO Jamese Biery. It could hardluy come at a worse time. “We’re in a and recessions are difficulton customers, communities and financial institutions,” Bier y said. “There’s not a whole lot of loan demand, peoplew are having a hard time payingtheir bills.
Bankds have lost other money — the Federal Home Loan Bank is not paying dividends right nowand that’s another So there are holes to fill.” Consider PNC Financial Servicees Group Inc., Pittsburgh’s largest which had deposits of more than $194. 6 billion as of March 31. PNC woulde be paying about $233.5 million annually and potentiallyanother $389.2 million for the one-timw assessment. That’s about $623 million. Thomas Bailey, presidengt and CEO of Brentwood Bethel Park, and chairman of the Pennsylvania Associationh of Community Bankers, said using domestic deposits as the criteria for bank size is especiall tough on community banks.
He said usinbg bank assets rather than domestidc deposits would bemore equitable. “About 90 percentt of the funding community banks get is througbdomestic deposits,” Bailey said. “Your big banks like Citigroupl and PNC get approximately 50 percent of theird funding fromdomestic deposits; they get funds from outside the country and other options as sources for fundinvg their loans. To move into assets would put us all onequak footing.” For Brentwood, the rising rates could limit the bank’s loanmaking capabilities. Brentwood’sx one-time FDIC bill at the 20 cent per $100 depositas rate would amount to morethan $670,000.
“Tha t would (be) a quarter of our (quarterly) earningsx on top of the regulatr insurance,” Bailey said. Five-branch Brentwood had depositxsof $335 million as of June 30, 2008; based on that its annual payment to the FDIC would be putting Brentwood’s 2009 FDIC bill at more than $1 million compare to $167,566 last year. Allegheny Vallehy Bancorp, an eight-branch bank based in Lawrenceville, had deposits of nearly $287 million as of June 30, 2008.
That woulds mean $334,000 spread among quarterly payments to the FDIC anda one-timer assessment of as much as “I believe it was a serious mistake for the FDIC to assesas smaller institutions for what essentiallyu has been a big bank issue,” said Alleghenyt Valley CEO Andrew Hasley. “Ths FDIC’s fund has been depleted due to significantlyy larger institutions taking risks that communitygbanks don’t take, and it should not be theifr intent to try to replenishj that fund during a time that bankx need to hold onto their capital to alloew us to make more loans.
Why should we have to pay for the governmenf taking on national debt and dumping this capital into otherbanks ? To me, it’s inherently unfair.” Hasley has been workintg with PACB and the Independent Communith Bankers of America to explore alternativese such as basing charges on banks’ assetss rather than deposits. The FDIC board is now considerinh changing the criteria forthe one-timer charge from deposits to assets, but even if it opts to do so, bankes will still take a hefty hit and may have to exploree different options to pay the “They’ll have to make their own decisions,” Bier said. “Some may sell stock or debt.
Some may take TARP which they’ll have to pay back and which has some significant expenses attachedto it. There are required levelw of capital and banks that cannot sustain those for whateverd reasons will either be forced to find a merger partneeror dissolve.” Customers won’t go unscathedr either. “There’s no free Bailey said. “That money’s goingh to come from somewherr — I’d think in terms of reduced interest rates and it mayreduce lending. Now, instead of having a profit which lets me doadditional I’ll be paying that out to pay this insurance It’s very serious.
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