Proxmire Offers Plan to Boost FDIC Fees for Big Banks

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WASHINGTON -- The two dozen largest U.S. banks will pay a total of about $120 million more in insurance premiums to the Federal Deposit Insurance Corp. -- while smaller banks will pay about 20% less -- if Sen. William Proxmire gets his way in pending banking legislation.

The Wisconsin Democrat's amendment to a banking bill before the Senate would require U.S. banks to pay insurance premiums on foreign deposits. The amendment also reduces the insurance premium rate for all banks from one-twelfth f 1% to one-fifteenth of 1%. The FDIC, Sen. Proxmire said, supports his amendment, which is one of four he has submitted to the bill.

The Financial Services Competitive Equity Act (S. 2851) is an omnibus banking bill that may face a Senate floor vote soon after Congress returns after Labor Day.

The effect of this reconfiguration of premiums charged to banks for FDIC insurance would be to keep the total level of FDIC premiums about the same, Sen Proxmire said. However, he said, more of the cost would be shifted to the large money center banks that take in deposits through their foreign branches. The amendment would not change the status of foreign deposits, which under law are uninsured.

In remarks last week to the Senate, Sen. Proxmire cited Continental Illinois -- whose dependence on foreign deposits figured heavily in its eventual bailout by the FDIC -- as evidence of need for changing the insurance premium structure.

"Although foreign deposits figured prominently in the FDIC rescue package for Continental, they did not contribute one penny of revenues to the FDIC insurance fund. In effect, foreign depositors in large U.S. banks enjoy the benefits of deposit insurance without having to pay for it." Sen. Proxmire said.

"Instead the cost is shifted to FDIC, and ultimately to the rest of the banking industry and their customers. …