Proposed Hike in FDIC Reserves Sparks Concern

By Joe Adler

Bankers and some lawmakers reacted with a mix of uncertainty and outrage on Wednesday after the conference committee opted to raise deposit insurance premiums on large institutions in an effort to pay the costs of the regulatory reform bill. The panel approved a 20-basis-point hike in the Federal Deposit Insurance Corp.’s minimum ratio of reserves to insured deposits, to 1.35%, but limited the higher premiums that would cause to banks with more than $10 billion of assets. Some Republicans derided the move as a “budgetary gimmick,” and warned that Congress could again raise the reserve ratio the next time it needs to pay for new legislation. Some regional banks were even angrier. The proposed bank tax, which was removed and replaced with the higher reserve ratio, targeted just financial firms with more than $50 billion of assets. Still, some observers said the new provision makes sense. They said the use of FDIC premiums as a budget item is not new, and that the FDIC would have been likely to raise the reserve ratio on its own anyway. “It builds on the overall framework of changes to deposit insurance, which are intended to and will punish banks based on size,” said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. “In that way, I didn’t find it that drastic. The overall framework is a complete rewrite and this is the cherry on top, if you will.”