On a busy day for regulators, don't miss the FDIC's proposal to raise insurance premiums on banks. Pursuant the bailout, which increased deposit insurance limits to $250,000, it isn't supposed to raise rates at all. But the limit raise isn't the only tax on the FDIC's resources. The fund is projecting a decline in reserves (there's a shocker), and, as the WSJ notes, has put 14 banks, with $29 billion of assets in its riskiest category. All of this is to be sold with the "we're not just raising rates, we're doing better risk weighting!" line that banks are probably tired of hearing at this point.
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8345157d569e2010535604193970b
Links to weblogs that reference The FDIC Gooses Premiums:
1. Posted by T. Shaw on October 7, 2008 @ 12:06 | Permalink
I believe the main reasons for raising FDI assessment rates are bank resolution losses and the vastly deteriorated bank risk profiles, not so much the coverage increase to $250,000.
Year-to-date, FDIC has been appointed receiver (by various bank chartering authorities) for 13 insured depository institutions with $349.1 billion in total assets. The estimated incurred FDIC losses amount to $12.2 billion reducing the FDI fund to about $45 billion. N.B. WAMU, with $307 billion is assets and $188 billion in deposits, was resolved at no loss to the FDI funds. Additional bank resolution losses may be expected.
The assessment rate increases are seven basis points. The new schedule will be 12 bp for the least risk banks and 50 basis points for the highest risk banks (You could say this is shooting the wounded). In the past 10 and more years, the vast majority of banks paid no FDI assessments.
Since FDICIA, the FDIC has been charging assessments based on bank risk profiles. The new procedures will meaningfully improve that process by factoring in secured volatile funding liabilities and rapid growth with brokered deposits which greatly add to FDIC loss risks, and factoring in assessment reductions for long term unsecured debt which mitigate FDIC losses, but cannot be included as Tier 1 capital.
2. Posted by David Zaring on October 7, 2008 @ 13:28 | Permalink
It's definitely not because of the increased ceiling. Want to make that clear. But thanks for the great and helpful comment.
3. Posted by fedgovernor on October 7, 2008 @ 16:53 | Permalink
Chicken feed, boys and girls ... what has proceeded so far is chicken feed compared to what is going to happen starting tomorrow.
We have two national banks: Citibank and Bank of America. One of them is going to be out of business in 10 days.
| Sun | Mon | Tue | Wed | Thu | Fri | Sat |
|---|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | |||
| 5 | 6 | 7 | 8 | 9 | 10 | 11 |
| 12 | 13 | 14 | 15 | 16 | 17 | 18 |
| 19 | 20 | 21 | 22 | 23 | 24 | 25 |
| 26 | 27 | 28 | 29 |
