FDIC Rate Hikes Lowering Profitability

Rising fees are hitting trust funds and other accounts at banks.
The core reason for the increase comes from hikes in the FDIC insurance that makes it more expensive to do business with banks today than even a year ago.
But the question remains as to whether or not a better bargain could be found that provides the same protection.
Roger Beverage, Oklahoma Bankers Association president and CEO, said the additional FDIC fee hikes even caught bankers off guard and the industry has worked together through the U.S. Congress to get some of those costs reduced.
Bankers expected some rate increase following the FDIC meeting last February, Beverage said, but assessments were added that raised the fees even higher. The increases are necessary because of the number of bank failures this nation is experiencing.
‘‘We were successful in getting help from Congress,’’ he said, ‘‘because we got the fees reduced to $30 million from $100 million that otherwise would be taken out of state banks alone.’’
Still, those higher rates charged by the FDIC must either be absorbed by financial institutions or passed on to customers. Some banks are using both routes to absorb costs. Other banks are reducing interest rates on savings accounts and trusts as a method to help pay the higher insurance rates.
Money paid into the FDIC fund is used to cover the costs of handling a failed bank.
Everyone has forgotten that banks were so successful for a decade, starting in 1996 through 2006, he said. Going back to the early 1990s, the FDIC fund was ‘‘upside down’’ and the banking industry got together and put money into the fund.
Banks were paid ahead on their insurance premiums, but that time ended in 2006 as the financial problems were beginning. With the failure of large community banks such as in Atlanta and more recently, the five in Illinois and one in Texas, the FDIC Insurance fund has been depleted and it is necessary to replenish the money. Fees paid by banks depend upon that institution’s financial status.
Regulators are taking a close look at those banks involved in real estate and in some cases banks have been downgraded from a one to a two. If a financial institution is downgraded, their FDIC insurance premiums can — and often do — skyrocket.
Since the FDIC is charging more, banks are looking at ways to pass on the costs and that is resulting in fees that had not previously been experienced, Beverage said.

Ralph Schaefer is managing editor of the Tulsa Daily Commerce & Legal News.

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