New fees, premium for banks expensive

Amid the avalanche of financial and economic news lately – mostly of it not very encouraging – came this tidbit of information that was likely overlooked by many: The Federal Deposit Insurance Corp. is increasing the insurance fees it charges banks, as well as slapping an emergency premium, effective Sept. 30.
For the 8,300 federally insured banks and thrifts, it seems they’ll have to help pay even more for the sins of others.
With the demise and near-collapse of scores of financial institutions since the recession began 15 months ago, it has become imperative that the FDIC ensure that its insurance fund remain operational.
FDIC Chairman Sheila Bair acknowledged, however, that the new fees would bring a “significant expense” to banks, especially during a time of financial uncertainty.
I spoke to a couple of top bank executives last week to get their opinion of the new fees.
And BancorpSouth Chairman and CEO Aubrey Patterson and Renasant Chairman and CEO Robin McGraw agree that bank customers shouldn’t have to worry about the safety of the vast majority of the banks in the country, including theirs.
“No one has ever lost money in an FDIC-insured bank,” Patterson said.
That’s why banks across the country pay into the insurance pool, in the event a bank or thrift does fail. You buy insurance for your car and home; banks buy insurance for their money.
But as Bair said, the new fees are an expense. For BancorpSouth, that could mean about $2 million just on the new premium. For Renasant it would be about $470,000. The premium amounts to 20 cents for every $100 in deposits.
And that’s on top of the increase of the regular insurance banks have to pay already.
It’s good to know that both BancorpSouth and Renasant are big enough to handle such a big expense.
The new fees could – could – mean that smaller banks have to cover those expenses through several ways, including higher fees charged to the customer or paying lower yields.
The banking industry says the new insurance fees will put an extra burden on an already struggling sector.
Indeed, many wonder why smaller banks have to pay for the misdeeds of bigger banks that stepped into toxic mortgages and the complicated financial instruments that came back to bite them.
Unfortunately, Wall Street has run over Main Street, again.
Note that the FDIC now insures accounts up to $250,000. Its insurance fund to cover all those accounts has shrunk to less than $19 billion. When the recession started in December 2007, it was $52.4 billion.
And the FDIC says bank failures will cost the fund around $65 billion through 2013, up from an earlier estimate of $40 billion.
No wonder that depositors are heading away from the mega-banks and putting their money into regional and community banks.
At least we know most of them aren’t playing with our money.

Dennis Seid

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