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ICBA Asks FDIC to Shorten Prepayment Period to Two Years, Impose a Third Year if DIF Needs Still Not Met

Washington, D.C. (October 28, 2009)—The Independent Community Bankers of America (ICBA) said that it generally supports the FDIC’s prepaid assessment proposal as a way to address liquidity needs of the Deposit Insurance Fund, but the FDIC should shorten the prepayment period from three years to two years and collect a third year of prepaid assessments at the end of 2010 if the DIF’s liquidity needs have not been met.

“The advantage of the two-year prepayment, with the option to require an additional year, is that it gives the FDIC an opportunity to reevaluate the industry and the economy at the end of 2010 and make another determination of future DIF losses and liquidity needs,” said Karen Thomas, ICBA executive vice president for government relations. “A two-year prepayment would also alleviate some of the liquidity pressure associated with a three-year prepayment and mitigate the impact on industry earnings, capital and lending activities.”

In its comment letter to the FDIC, ICBA strongly recommended that the assessment base used for the prepayment calculation be the same assessment base that was used for the second-quarter special assessment—an institution’s total assets minus its Tier 1 capital. “A broader assessment base, such as assets minus Tier 1 capital, would result in a fairer assessment system, with the larger banks paying a share of the assessments that is proportional to their size, rather than their share of domestic deposits,” said Thomas. To that end, ICBA strongly supports the Bank Accountability and Risk Assessment Act of 2009 (H.R. 2897), which would broaden the assessment base for FDIC deposit insurance premiums and create a separate risk-based assessment for too-big-to-fail banks that represent a systemic threat to our nation's financial system.

ICBA also recommended that the FDIC use a significantly lower estimated annual deposit growth rate when computing the prepaid assessment for banks located in parts of the country that historically have had slower deposit growth rates. ICBA noted that many community banks, particularly those located in small towns and rural areas, have not experienced a 5 percent annual deposit growth in recent years, especially in a low-interest-rate environment. In addition, the FDIC should establish an earlier refund method for banks that have not exhausted their prepaid assessment by Dec. 31, 2012, and annual refunds should be made soon after the end of any year when a bank has significantly overpaid its prepaid assessment.

ICBA commended the FDIC for concluding that the prepaid assessment should qualify for a zero risk weight under the risk-based capital requirements and for establishing a procedure for banks to apply for an exemption from the prepaid assessment.

To read ICBA’s letter to the FDIC, visit www.icba.org.