Magazine article American Banker

Sounding off on FDIC Plan to Back Debt

Magazine article American Banker

Sounding off on FDIC Plan to Back Debt

Article excerpt

Byline: Joe Adler

WASHINGTON -Less than two weeks after it was unveiled, critics claim a Federal Deposit Insurance Corp. plan to guarantee bank debt is too narrow, expensive, and punitive for institutions that choose not to participate.

In roughly 50 letters filed in response to the interim rule, banks of all sizes argued the agency's planned 75-basis-point charge for covering unsecured debt is too high.

"I am a small institution selling funds regularly. The 75 bp fee is in my opinion extreme," wrote Don Vondra, the president of the $73.7 million-asset United Bank in Absarokee, Mont., in an Oct. 29 letter. "I would like to ... stay in the program but the cost may make it difficult to."

The FDIC announced last month it would temporarily guarantee bank debt and back all non-interest bearing deposits as part of a government effort to unclog credit markets. The interim rule, released Oct. 23, detailed procedures for banks to participate and allowed them until Nov. 14 to opt out. After banks complained that was too short a time frame, the FDIC said late Monday it would extend the deadline to Dec. 5.

Bankers are lobbying for other changes, including more explicitly covering all cases where an issuer defaults and nixing a plan to publish the names of banks that opt out of the program.

Many called the 75-basis-point fee prohibitive.

"If you leave the assessed fee" at 75 basis points "in the current economic conditions, many smaller banks will opt out," Jim Murphy, a vice president at the$452 million-assetPacific State Bank in Stockton, Calif., wrote in an Oct. 29 letter. "They may then be at a severe competitive disadvantage in terms of retaining and attracting customers."

Mitchell J. Bennett, the president and chief executive of the $90 million-asset Farmers Bankin Hardinsburg, Ky., said it was unfair that the FDIC planned to publish on its Web site a list of institutions choosing not to stay in the program.

"I interpret the opt-out and public notice requirements ... to be a strong-arm tactic to encourage banks to participate whether it is necessary or not," he said in an Oct. 27 letter. "Instead of 'singling out' those banks that have operated in a sound, successful manner, especially during these difficult economic times, why doesn't the FDIC ask those banks with liquidity concerns to opt-in in order to participate in the program? …

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