Posted on 05/24/2009 7:00:57 AM PDT by stan_sipple
In 2007, West Gate Bank paid no premiums to the Federal Deposit Insurance Corp.
In 2008, the Lincoln bank paid $160,000.
This year, with a special emergency assessment, which was finalized on Friday, President Carl Sjulin is estimating West Gate’s premium to be around $530,000.
“It’s a burden,” Sjulin said.
It’s also bitter medicine for banks that did little or nothing destructive to contribute to the unhealthy state of the nation’s banking industry.
“It’s a very difficult pill to swallow for Nebraska bankers,” Sjulin said. “We didn’t have anything to do with it, but we’re paying for it.”
That’s a sentiment expressed by community bankers around the country, as their FDIC premiums skyrocket.
The FDIC apparently heard their complaints, as it announced Friday that it would adopt a new system of special fees that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.
“There will be some shifting of the burden (to major banks). The shift is not huge to them. We’re asking them to pay more,” FDIC Chairwoman Sheila Bair said.
The new FDIC emergency premium, to be collected from all federally-insured institutions, will be 5 cents for every $100 of a bank’s assets minus its so-called Tier 1, or regulatory capital, as of June 30. The FDIC’s previous planned fee was 20 cents per $100 of a bank’s insured deposits. A measure of a bank's health, Tier 1 capital includes common and preferred stock as well as intangible assets such as tax losses that can be used to reduce future earnings.
Because larger financial institutions tend to rely more heavily on funding from sources other than deposits, bigger banks would end up paying a heftier portion of the new assessment. FDIC officials estimated that of the $5.6 billion the agency is seeking to raise, as much as $500 million that would have been paid by smaller banks under the previous plan now could be absorbed by larger ones.
The regular quarterly assessment system falls harder on smaller banks, because it is based on the amount of deposits they hold and the overall health of the bank.
Wayne Abernathy, an executive at the American Bankers Association, told Reuters news service that insured deposits often make up less than 50 percent of the funding on larger banks’ balance sheets. But for smaller banks, he said, that percentage can reach as much as 90 percent.
Mike Jacobson, chairman, president and CEO of NebraskaLand National Bank and chairman of the Nebraska Bankers Association, said bankers large and small understand the need to shore up the FDIC fund.
“Every bank in the country is willing to do its part,” Jacobson said.
But those small banks are also chafing under the weight of the FDIC premiums, while at the same time realizing that the FDIC was partially responsible for the current situation.
“What banks are frustrated with is, they want to see good regulation and consistent regulation,” Jacobson said.
There seemed to be a time when some banks were held to a standard different from others, Jacobson said.
Big investment banks took loads of risk and weren’t required to have adequate reserves.
“There was a little bit of a breakdown in how those banks got reined in,” he said.
When those banks got into trouble last fall, the federal government allowed them to convert to bank holding companies.
That gave those banks access to federal funds, but it also brought their deposits into the FDIC fold.
“Trillions of dollars came into the insurance system ...” said Sjulin. “And now we have to insure these.”
That was one factor in the spike in FDIC insurance premiums.
Another was the FDIC’s decision last fall to temporarily raise the limit on insured accounts from $100,000 to $250,000, a move that has now been extended to the end of 2013. That helped instill confidence in depositors that their money was safe during a time of financial turmoil, but to be able to back up that guarantee, the FDIC needed bigger reserves.
The need for bigger reserves became evident over the past few months as bank failures started to rise.
Already this year, there have been 34 bank failures in the United States, according to the FDIC, more than the 25 in all of 2008. The 2009 tally includes the first failure of a Nebraska bank — Sherman County Bank — since 1989. There were only 27 bank failures nationwide from 2000-2007.
The FDIC insurance fund is meant to protect deposits when banks fail, so when bank failures rise, the government is forced to draw down the fund more.
In the fourth quarter of 2008, before any of the bank failures this year, the fund had already dropped 50 percent to $18.9 billion.
The FDIC now expects bank failures will cost the fund around $70 billion through 2013, up from a previous assessment of around $65 billion. The agency is hoping to raise $5.6 billion under the new fee system approved Friday.
The rise in premiums is having a huge affect on Lincoln’s Pinnacle Bank
Pinnacle, like West Gate, didn’t pay an FDIC insurance premium in 2007 nor for several years before that thanks to a credit many banks received from a change in banking laws in the late 1990s. In addition, the insurance fund was flush with cash due to the overall health of the banking industry. The credit expired last year, which meant the banks were set to start paying a premium once again.
Before the economic turmoil and bank problems of the past year, Pinnacle Bank president Mark Hesser said he was expecting to pay between $200,000 and $400,000 in FDIC premiums this year.
Now he estimates that number to be around $4.8 million, including the special assessment.
Pinnacle Bank’s first-quarter assessment, which is due in June, is more than $1.4 million.
“It’s a significant operating cost that will be taken on by Pinnacle Bank,” Hesser said, and one he expects to continue for several years to deal with one of the worst banking environments since the Great Depression.
Other local banks have seen a similar situation.
Cornhusker Bank’s first-quarter assessment was $130,000, compared with $7,000 last year. Union Bank will be paying $735,000 after paying nothing in the first quarter of 2008. TierOne’s assessment grew from $143,000 to more than $2.1 million.
Despite the increased premiums, John Dittman, chairman of Cornhusker Bank, is philosophical about the whole thing.
Yes it’s somewhat of a burden. No, his bank didn’t play a part in creating the mess.
“But we don’t have any control over that,” he said.
Far more important than finger-pointing, he said, is confidence in the FDIC.
“We are where we are,” Dittman said. “Everybody’s got to pay a little more, but that’s just the way it is.”
This whole fiasco is reprehensible, and largely unnecessary (save for the LibTards who championed risky mortgage lending). However, to suppose the banks are going to pay these fees is wrongheaded. They will surely pass these fees (costs) along to their consumers in the way of increased transaction fees and such.
NO BUSINESS PAYS TAXES. THEY ALL PASS ALONG TAX COSTS TO CONSUMERS IN THE FORM OF HIGHER PRICES.
It’s time to take back the country.
Far more important than finger-pointing, he said, is confidence in the FDIC.
Despite the increased premiums, John Dittman, chairman of Cornhusker Bank, is philosophical about the whole thing.
Nice philosophy Ditzman...that of financial oligarchs/socialists...legal plunderers.
hold your breath the next time you go to a foreign atm
more of our money the banksters can take to the housing blackjack tables and not worry about going bust.
Take a look at this article by John Tamny re: corporate taxes:
http://www.realclearmarkets.com/articles/2009/05/the_mythology_surrounding_the.html
That is the beauty of taxing businesses! The sheeple get taxed indirectly, and most are too stupid to blame the government, while they instead blame "greedy companies trying to squeeze profits out of cat-food-eating grandmas and blind cancer orphans" when gas companies make 9 cents profits on the same amount of gas the government makes 75 cents (when you add gas taxes to all the government fees associated with land use, extraction, refining, payroll taxes, etc). That is why the business world has to fight HARD to prevent consumer-level sales tax from being hidden inside the cost of goods - politicians would like nothing more than to wrap sales taxes invisibly into consumer prices, and then ramp that sh*t up to painlessly expand the reach of federal/state largess.
The private sector is always set up as the fall guy, as in the housing bubble and burst (nevermind CRA, nevermind Fannie/Freddie, and nevermind the "great moderation" endowed by the politically-motivated policies like retarded-low interest rates enlightened actions of the federal reserve and treasury in their attempt to eat real boom growth to feed fake recessionary growth make the economy more profitable for their revolving door cronies and more stable for the benefit of incumbent politicians compassionate.
The FDIC will bankrupt small banks and credit unions, while at the same time they will bailout the large ones. This is part of the long term plan to consolidate banking and put it more easily under even more government control.
Well I would exlude small business from that statement....we can’t always afford to pass the cost on.
Until the taxes force the end line consumer into a classic supply & demand curve decsion....
If you want less of something-—tax it
Which in turn will provide the impetus for nationalization, subsidy (subject to government conditions, which can and will change unilaterally), or other form government control, generally while maintaining the facade of private enterprise as to retain the ability to deflect criticisms toward non-government entities.
Communism, socialism, (vanilla/military) Keynesianism, and third-way democratic quasi-socialism may all take drastically different forms on paper (and in the imaginations of utoptians everywhere), but all have the same final destination in practice: total-state fascism.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.