Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=100203
Story Retrieval Date: 5/24/2013 3:43:21 AM CST
Several Illinois banks said they support increased insurance coverage by the Federal Deposit Insurance Corp. even though they will pay more for it and weaker institutions would pay a larger share under the agency’s proposal released Tuesday.
The Emergency Economic Stabilization Act of 2008 signed by President Bush on Friday increases the limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor until Jan. 1, 2010. Under the FDIC’s plan, the assessment rate schedule for coverage would be raised by 7 basis points (annualized) beginning Jan. 1, 2009. Institutions that are considered risky would bear a higher assessment rate.
“I think increasing the FDIC insurance limit is a good idea at a time when people are a little bit bewildered by what’s going on and concerned,” said Robert Gecht, president of Albany Bank and Trust Co. N.A., in Chicago. He said the rise in assessments is to be expected with a number of banks in trouble, but his bank will not see a significant rate increase.
David Oser, chief economist at ShoreBank Corp., also in Chicago, said having a higher amount of insurance will help build confidence to receive deposits from larger customers.
“We think it will help us as we look to attract new deposits,” said Mark A. Hoppe, president and CEO of Cole Taylor Bank, based in Rosemont. “And we are definitely going to utilize this new ruling by the FDIC to the greatest extent we can.” He said the higher insurance coverage will help boost financial institutions and their liquidity.
David Mills, an investment relations contact for Urbana-based First Busey Corp., has mixed emotions about the rate change. He said the FDIC’s plan would increase First Busey’s bank insurance premium by about $1.3 million after taxes, but “that’s the price you pay for insurance.”
Banks currently pay anywhere from five cents to 43 cents for each $100 of insured deposits for FDIC insurance, according to an FDIC press release. Most banks fall in a low risk category and would have their assessment rates doubled to 12 to 14 cents from a current rate of five to seven cents under the proposal, based on data from the American Bankers Association. If banks obtain more than 10 percent of their domestic deposits from brokered deposits that contribute to rapid growth or if more than 15 percent of their domestic deposits are secured liabilities such as repurchase agreements, there would be additional charges. Banks in the low risk category with very high levels of capital would be granted a premium decrease of up to two cents.
The American Bankers Association, whose members hold 95 percent of the banking industry’s $13.3 trillion in assets, released a statement Tuesday supporting the FDIC’s effort to raise funds.
“The premium increases announced today by the FDIC are significant and even though they pose an extra burden on every bank, the industry is quite capable of meeting this obligation,” said Edward L. Yingling, president and CEO of the American Bankers Association, in the news release. Though he supports the need to restore the fund, he said the FDIC should eventually lower premiums if its cost projections are too high.
The higher assessment rates support the FDIC’s goal of returning the Designated Reserve Ratio, the ratio of the FDIC insurance fund to total insured deposited in the banking system, to at least 1.15 by the end of 2013, according to a statement. The FDIC board of directors voted to keep the ratio at 1.25 as a long-term target. David Barr, a spokesman for the FDIC, said the target ratio would ensure that for every $100 of deposits in the banking system, there would be $1.25 in the insurance fund. The current ratio is 1.01, which is historically low compared with a ratio of 1.38 in 1998, said Barr.
The FDIC was created by Congress in 1933 to rebuild public confidence in the country’s banking system.