Bay State bankers are bracing for an increase in their Federal Deposit Insurance Corp. insurance rates of up to double the current amount, following the insurer’s announcement late last month that it must recoup losses to its insurance fund.
“The FDIC’s reserve level has fallen to a level where [by law] they are going to have to raise it,” said Thomas R. Venables, president and chief executive officer of Benjamin Franklin Bank in Franklin. “Unofficially, we’ve heard Â… that that’s going to mean double the premiums.”
For $967 million Benjamin Franklin Bank, that could mean an increase in premiums from $500,000 to $1 million – even though at the lowest possible premium rate, which his bank pays, Venables said.
“That’s no small issue,” he said.
The projection is already included in his institution’s preliminary budget for next year.
The FDIC insures deposits of up to $100,000 at most banks.
Peter Conrad, president and CEO of the Cooperative Central Bank, which provides insurance for deposits exceeding $100,000 at its member banks, said all of them “know [insurance premium increases] are coming.”
“The question is whether they are going to go up to 9 basis points or 13,” he said.
Financially healthy banks today pay between 5 and 7 basis points (.05 percent to .07 percent of their deposits) in annual FDIC premiums. The lowest-rated banks pay up to 43 basis points per year.
FDIC spokesman David Barr said the agency hasn’t determined how it’s going to restore the fund to the required level of at least 1.15 percent of bank deposits nationwide.
Last week, the fund stood at about $45 billion, or 1.01 percent of the nation’s $4.46 trillion in insured deposits, he said. The number includes $8.9 billion the FDIC expects to lose following its July takeover of California-based IndyMac bank, although it has not yet sold all the assets of the bank.
Increasing insurance rates is the most likely way the agency will raise premiums, Barr conceded.
“But you can’t say definitely that we’re going to raise [them].”
The agency’s board will meet in October to decide how much it has to increase the fund and how it will do so.
The fund’s other income sources come from interest and investments, or money recouped from the sale of the assets of failed banks, he said.
No Massachusetts banks have failed during the current economic downturn, but 11 failed nationally this year and three in 2007, Barr said. Late last month 117 banks were on the FDIC’s “problem list.”
However, he noted that just 13 percent of banks that appeared on that list between 1992 and 1997 actually failed.
Stanley Ragalevsky, a banking attorney at the Boston office of Kirkpatrick & Lockhart Preston Gates Ellis, said he doesn’t think the Bay State will see many bank failures.
“But if the economy deteriorates further, we could see a couple,” he predicted.
