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BIF Drop May Mean Premium Costs for Banks Next YearBy Peter E. Feltman, M.A., CCH Washington News Bureau, contributing author, CCH FOCUS.The Bank Insurance Fund’s (BIF) ratio of reserves to insured deposits has fallen below 1.25 percent, raising the possibility that banks will soon face premiums for Federal Deposit Insurance Corp. coverage. Under current law, the FDIC must assess banks premiums for deposit insurance whenever the ratio is below 1.25 percent at a rate of 23 cents per every $100 dollars in insured deposits. Healthy banks do not pay premiums when the ratio exceeds 1.25, as it has since 1996, and currently 92 percent of all banks are considered healthy and not making premium payments. In his announcement of the drop, FDIC Chairman Donald Powell said that the FDIC voted last May not to charge premiums for the second half of the year 2002, but will readdress the issue in the fall, when the FDIC board will decide whether to charge premiums for the first half of 2003. “If the BIF is expected to remain below the statutory minimum of 1.25, then we have no choice under the current law: we will assess banks the amount necessary to get the fund back to the target,” Powell stated. According to the FDIC, the BIF ratio has been falling over the past three years. The agency attributes the drop to deposit growth, bank failures, reserves for expected losses and more accurate methods of estimating insured deposits.The America’s Community Bankers (ACB) contends, however, that a significant reason for the declining ratio has been the influx of “tens of billions of dollars from a handful of large securities firms over the past two years....” This influx, according to ACB, has reduced the BIF ratio by four basis points. Many bankers have complained that securities firms are shifting money into FDIC-insured accounts, creating a fairness issue since these securities firms are getting FDIC coverage but have never paid any premiums. ACB and other trade groups have urged Congress to deal with these so-called “free rider” securities firms. A previous legislative proposal would have given the FDIC the ability to charge free riders, but when the full House of Representatives passed a deposit insurance reform bill, H.R. 3717, on May 22, 2002, this provision was not included. |