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ICBA Urges Lower FDIC Assessment Rates and Adjustments to Agency’s Risk-Based Premium Proposal

Washington, D.C. (Dec. 17, 2008)—The Independent Community Bankers of America (ICBA) today continued to urge the Federal Deposit Insurance Corporation (FDIC) to adopt more modest base assessment rates for 2009, while also calling for further changes to the FDIC’s assessment system.

Under the FDIC’s proposed restoration plan, new base assessment rates would increase in 2009. Beginning April 1, 2009, the rates would range from 10-14 basis points for Risk Category I institutions to 45 basis points for Risk Category IV institutions.

“The base assessment rates that the FDIC has proposed are simply too high,” said Karen Thomas, ICBA executive vice president of government relations. “While ICBA recognizes the importance of ensuring the strength of the Deposit Insurance Fund, a more modest increase in base assessment rates next year will keep additional funds in community banks, allowing them to continue lending to small businesses and consumers in towns and cities throughout our country — a crucial component of our country’s economic recovery.”

ICBA also made further recommendations on proposed changes to the FDIC risk-based assessment system, including:

  • Remove brokered deposits from the risk assessment analysis or, in the alternative, substantially increase the threshold ratio of brokered deposits to domestic deposits that trigger higher premiums from 10 percent to 25 percent;

  • For Risk Category I institutions, change the definition of a “rapid asset growth” institution from 20 percent growth over four years to 40 percent growth over the same time period to target only institutions that have truly experienced rapid asset growth and not those with average asset growth;

  • Exclude from the definition of brokered deposits those deposits that have many of the same characteristics of core deposits, such as reciprocal deposit placement services offered through programs such as the Certificate of Deposit Account Registry Service (CDARS);

  • Reconsider the secured liability upward adjustment in rates or, in the alternative, exclude Federal Home Loan Bank advances from the calculation altogether. At a minimum, the FDIC should substantially increase the trigger ratio of 15 percent of secured liabilities to domestic deposits to 30 percent so that the adjustment will not penalize the typical community bank that uses Federal Home Loan Bank advances as a consistent, reliable source of liquidity and funding;

  • Increase the unsecured debt downward adjustment in rates for small institutions to include larger amounts of Tier I capital to reward highly capitalized institutions for their lower risk;

  • Impose a systemic risk premium on too-big-to-fail institutions.

To read ICBA’s comment letter, click here or visit www.icba.org.