Dedham Institution for Savings has a deposit base of about $800 million, so it might seem like it’d be no big deal to shell out extra money to the cash-strapped Federal Deposit Insurance Corp. in the form of higher premiums plus a one-time fee.
But that one-time fee, unless the FDIC can get expanded borrowing powers, will be set at 20 basis points – a figure like that translates to roughly $1.6 million for Dedham, or about 40 percent of the bank’s take-home pay, said CFO Gary Culyer.
The FDIC announced the higher premiums and special fee this month as it became clear the organization needed to bolster its coffers to deal with expected bank failures for the next couple years.
Although bankers understand that problem, reaction to the announcement was swift and heated as bankers fretted over where that money would come from. Culyer said banks likely have to pass those costs on to customers or borrowers, as well as slash internal personnel costs.
Maybe Some Relief
A ray of hope came late last week in the form of a letter from FDIC head Sheila Bair, who indicated the fee would be knocked down to only 10 basis points if Congress expands the FDIC’s borrowing authority. That lower fee would provide relief for much of the industry, although it’s still a significant chunk of money, and one that banks did not expect when they formed their 2009 budgets.
The timing is terrible, said Bob Lewis, president and CEO of Worcester-based Bay State Savings Bank. Banks will have to pay based on how high their deposits are, and right now happens to be a time when community banks’ deposits are rising as consumers take their money out of the markets and imploding megabanks.
Chocking up another hefty fee also goes directly against the current push to have banks loosen up more cash for lending, said Massachusetts Bankers Association spokesman Bruce Spitzer; it doesn’t inspire the kind of willingness to lend that lawmakers, regulators and consumers are asking for.
David Elliot, president of the Woburn-based Depositors Insurance Fund, said the thing to remember is while the extra fee was an unwelcome surprise, it’s not unmanageable – it certainly won’t bring any banks under. Also, it’s early in the FDIC’s decision-making process: The industry has until early April to argue its case, and many more changes a likely to come.
Still, whether it’s 10 basis points or 20, “to have any type of additional cost imposed upon [banks], it’s not good,” he said.
Bankers are also feeling sour that they’re being assessed a fee to cover the faults and bad loans made by other banks. Spitzer said that doesn’t sit well with bankers who made responsible loans and kept themselves out of the kind of investments that have sunk other institutions. A possible alternative, he said, would be to assess fees based on individual institutions’ positions.
Culyer doesn’t like the spread-the-pain distribution of fees, either, but Spitzer’s arguably more merit-based distribution of fees doesn’t seem like a much better solution. If hurting banks got assessed higher fees, it might sink them entirely, he said.
Culyer said he hasn’t begun to make budget changes until the following weeks bring some certainty with regard to what the fee actually is.
“If there’s any good news, it’s that it’s a one-time assessment,” he said.
