Magazine article American Banker

Banks to Get $2B Refund for Delay in Premium Cut

Magazine article American Banker

Banks to Get $2B Refund for Delay in Premium Cut

Article excerpt

The government is expected to owe the banking industry nearly $2 billion by the time the Federal Deposit Insurance Corp. finally cuts its rates in September.

That's because banks will be charged current, high premiums through Sept. 30, even though the FDIC estimates that the Bank Insurance Fund hit its required reserve level in April - about three months earlier than expected.

Rebating BIF premiums back to May 1 would mean the FDIC overcharged banks for five months, or $1.9 billion in premiums. The agency has promised to pay interest on those overpayments as well.

Right now banks are paying 23 cents per $100 of domestic deposits. In January, the FDIC announced plans to slash bank rates to an average of 4.5 cents. The agency has said it may not reduce premiums until it can prove that the bank fund holds $1.25 for every $100 of insured deposits.

Congress told the FDIC that it could not lower bank premiums until this 1.25% threshold was met.

The FDIC has been estimating that the fund would hit 1.25% sometime between June 1 and July 31. News of an earlier recapitalization - as early as the end of April - came last week from William A. Longbrake, the FDIC's chief financial officer.

Speaking to a group of analysts last Thursday, Mr. Longbrake said the FDIC may have to rebate all premiums paid after May 1. In an interview Friday, he emphasized that the FDIC will not be able to pinpoint the bank fund's recapitalization until mid-September, when analysis of the June 30 call report data is completed. He said the refund date could slip to June 1.

"It could be as early as May 1, it could be June 1," he said in the interview. "I don't think it will be later than that unless deposit growth takes off in a spectacular fashion."

In the first four months of 1995, total deposits declined 0.6% to $2.399 trillion, according to the Federal Reserve Board. …

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