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CBAI Supports the ICBA’s Position on Proposed FDIC Assessment Changes

The ICBA recently responded to an FDIC Notice of Proposed Rulemaking (NPR) regarding changes to FDIC assessments. The ICBA’s response on behalf of the nation’s community banks differs radically from the joint response by the ABA, the Financial Services Roundtable (“representing the largest integrated financial companies”) and The Clearing House (“owned by the world’s largest commercial banks”).

The FDIC’s rulemaking will implement the Dodd-Frank Act requirement that large banks are responsible to increase the Deposit Insurance Fund (DIF) reserve ratio (Ratio) from 1.15% to 1.35%. This in recognition of the large banks’ outsized risk to the DIF and their behavior in causing the financial crisis. The surcharge to increase the Ratio would equal 4.5 basis points of the large banks’ assessment base. The FDIC expects the surcharge on large banks will commence in 2016, that it should take approximately eight quarters to raise the Ratio to 1.35%, and banks with less than $10 billion in assets (community banks) will receive a credit for the portion of their regular assessment that contributes to the growth of the Ratio between 1.15% and 1.35%.

CBAI and ICBA strongly supported the Dodd-Frank mandate to surcharge the large banks and indemnify community banks. ICBA’s recommendation was to reduce the eight quarter surcharge period to four quarters. A reduction in the surcharge period would properly fund the DIF in a shorter period of time, and community banks would be able to take advantage of the assessment credits sooner than later, perhaps as early as the fourth quarter of 2017.

The ABA and the other mega bank groups are clearly supporting the big bank position on this issue. Their recommendations include increasing the surcharge assessment period from 8 to 14 quarters (into 2019 with a potential shortfall extension to 2020); cutting the surcharge in half to 2.25 basis points; integrating the assessments into the offsets of long-term unsecured debt issued by many large banks; not including the assessment base of affiliate small banks in the assessment base of the large banks; and a full $10 billion deduction from the surcharge base for every bank larger than $10 billon. These recommendations are obviously meant to ease the burden of responsibility on the largest banks which dramatically delay the funding of the DIF and the use of assessments-credits by community banks.

The ABA decision to again side with the big banks and the other large bank associations further highlights the need for autonomous community bank representation by the ICBA and CBAI. CBAI proudly supports the community bank position on this important issue and urges the FDIC to incorporate ICBA’s recommendations in the final rule.

January 20, 2016