DANIEL J. FORTE – Threat to system
Unlike baseball, industry advocates can’t count on three strikes knocking out any potential legislation, especially for the ever-present bank exam fees issue.
The idea of banks paying for federal examinations was first proposed eight years ago by the Clinton administration in its budget package and was soundly defeated. It annually has continued to turn up like a bad penny. But what makes this year different is the fact that it was attached to the Bush administration’s budget.
While appearing on a Republican budget raised a few eyebrows, the plan is even less likely to be passed than in earlier years for two reasons, according to Dale Zelony, director of legislative services for the Community Bank League of New England. “One [reason is] because the Republicans tend to be more pro-business and this would be seen, I’m sure by many, as an additional tax,” she said. In addition, a group of community bankers recently returned from a trip to Washington where they were left with the impression the item simply had not been removed from the previous budget, rather than intentionally added.
“Like anything else, once a revenue raiser is identified, congressional budget staffers keep it on a list that ‘if we need to raise additional funds, this is an option.’ So it’s not anything that any one particular branch of government is actively lobbying for,” according to Daniel J. Forte, president of the Massachusetts Bankers Association.
“We’re hoping once again that this issue, this provision, can be eliminated from the budget process. I don’t think this is something that President Bush has really given a lot of thought to. I think it’s a carryover revenue raiser from previous budgets,” said Forte.
But while both Forte and Zelony are reasonably sure the item will not pass, they aren’t resting on their laurels either.
“We strongly oppose it and we will be sending those comments to the New England delegation,” said Zelony.
“The banking committee in Congress has voiced consistent, unanimous opposition to this type of threat to the dual banking system. We’re in the process of working with [U.S. Rep.] Barney Frank now to have our delegation weigh in again, as they have done in previous years, in opposition to this. So we’re hopeful there will be bipartisan support to eliminate this threat,” said Forte.
Even the state Division of Banks, an entity that usually remains silent on political issues, has voiced opposition to the item.
“We don’t believe the fees are necessary,” said Steven L. Antonakes, senior deputy commissioner of administration and policy at the division.
The proposal would have the Federal Deposit Insurance Corp. and the Federal Reserve assess fees to state-chartered banks and bank holding companies for exams. Although fees would not be assessed to state banks with less than $100 million in assets, Forte said it would still affect 65 percent of banks in the state.
“What we oppose is that this is almost double or triple taxation from the standpoint that state-chartered banks’ principal regulator is the Division of Banks. So they pay exam fees to the Division of Banks,” said Forte.
Triple Witching Hour
Additionally, banks deposit reserve funds with the FDIC. The interest earned from those deposits is more than enough to cover exam expenses, said Forte.
“For Massachusetts right now, banks pay about $9.8 million to the state regulators. We would think that if the FDIC jumped in and charged similar [fees] … that could be well above an extra $10 million in fees that the state-chartered banks could be hit with,” he said.
That would cause a number of banks to question whether to hold a state or federal license, said Zelony.
“You shouldn’t create a new double taxation structure simply because you have the option to do that. It’s not fair and it would make the state charter prohibitively expensive for many of the small community banks,” said Forte.
Under the plan, a state-chartered bank under a holding company could potentially pay exams to the Division of Banks, the FDIC and the Federal Reserve.
“That’s sort of like the triple witching hour on Wall Street. You have to take a step back and say, ‘Is the state charter worth it, if we’re going to get taxed every place we move?'”
The danger in having state-chartered banks switch to federal charters resides in locative issues. “It’s always nice to have the regulator that understands your market area as opposed to a national regulator which tends, at times, to look at issues from the homogeneous standpoint from Washington,” said Forte.
“You want to have a strong state-chartered banking system, because at least that way you have some input and impact as to the direction of the industry,” he said.
The Division of Banks cites the lack of proof that the extra money is needed.
“I’m not certain that a legitimate study has found these additional fees are warranted or – even, really, for that matter – required in terms of the FDIC, whether or not the deposit insurance premiums that banks already pay is not sufficient for the costs of supervision of state-chartered banks,” said Antonakes.
Additionally, the Conference of State Bank Supervisors has issued an action alert asking its members to voice opposition to the bank fees.
