The Federal Deposit Insurance Corp. is set to vote Thursday morning on a proposal that would force big banks to bear the assessment burden of growing the agency’s federal reserves to a new minimum.
The agency projects that the Deposit Insurance Fund will reach a 1.15% ratio of reserves to insured deposits by early next year, at which point the agency will revamp what institutions pay in assessments.
Under the plan, banks with less than $10 billion of assets will see their premium reduced by around 30%. Banks over that asset threshold will see their base assessment rate similarly decline, but must pay a 4.5 basis point surcharge over the following two years to help grow the fund to 1.35%. As a result, roughly two-thirds of large banks will pay more in assessments, the FDIC said.
So under the new FDIC rule, small banks will see their annual insurance assessment fall, while large banks will see theirs rise. The increases will cost large banks around an extra $3 billion annually, American Banker reports, and bring their total annual premiums to $10 billion per year for the two years the surcharge is in effect. That seems like a lot of money.
This pricing scheme of course makes no sense, and is a minor travesty. Small banks tend to be less well-diversified by product and geography than large banks, and so tend to make up the overwhelming portion of the bank failures the FDIC’s bank insurance fund is set up to backstop. Yet their premiums are going down under the new plan, even as the big banks are hit with a surcharge. In a sane world (and in the private sector) insurance premiums would be set on a case-by-case basis and would reflect the risks posed by each institution. And given small banks’ track record, their premiums per deposit would be higher than large banks’. But no. My pal Cam Fine, head of the ICBA, the community banks’ main lobbying group, never tires of complaining about how his banks are put upon by greedy, predatory, megabanks. I wonder if he’ll get on the phone this week and thank them for this new subsidy they’ll be providing.
What do you think? Let me know!