FDIC Chooses Pay Early Over Pay More
NEW YORK (
) -- Suddenly, being the biggest bank in America doesn't seem like such a great thing.
The
Federal Deposit Insurance Corp.
is poised to preemptively collect roughly $45 billion worth of fees that banks would have to pay over the next few years in order to
.
The fees assessed will be based on the size of a bank's deposit base, meaning that big players like
Bank of America
(BAC) - Get Report
,
JPMorgan Chase
(JPM) - Get Report
,
Wells Fargo
(WFC) - Get Report
and
Citigroup
(C) - Get Report
will have to pay up much more than, say, a
Goldman Sachs
(GS) - Get Report
or
Morgan Stanley
(MS) - Get Report
, who both became bank holding companies last year to ensure their viability, but still largely operate like investment banks.
Based on risk profile, banks must pay anywhere from 12 cents to 45 cents per $100 in deposits, with the "safest" institutions at the lower end of the range. The FDIC on Monday proposed collecting fees for the last quarter of 2009 through the last quarter of 2012 because a rash of bank failures has depleted its reserve fund.
Based on June 30 deposit size multiplied by the lowest assessment rate, Bank of America - the largest U.S. bank, with $900 billion in deposits - would owe $3.5 billion, according to
Bloomberg
calculations. Wells Fargo would owe $3.2 billion; JPMorgan Chase would owe $2.4 billion and Citi would owe $1.2 billion. Using the same calculation, Morgan Stanley would owe $242 million, given its $62 billion in deposits at June 30, and Goldman would owe $161 million, given its $41.5 billion in deposits.
The fees may be higher since it's unclear how the FDIC will account for deposit growth over the next three years, or whether it will include an assessment-rate hike that it would like to implement starting in 2011.
Still, banks favor this plan over other options that could have forced them to pay special emergency charges in addition to regular fees. Another reason the prepayment plan is preferable is that regulators are likely to allow banks to absorb the fees on their balance sheets over time, rather than take a direct hit to capital all at once.
With
hundreds of banks
on the FDIC's "problem" list and its reserve fund hemorrhaging, the agency had to find a way to make ends meet. As of June 30, total assets in the fund stood at nearly $65 billion but only $22 billion of that figure was in liquid assets such as cash and marketable securities. The total asset figure is actually up from $55 billion in the fund in June 2008, before the financial crisis hit, but back then, nearly the entire amount was liquid. In its proposal Monday, the FDIC said its calculations indicate liquidity needs would exceed liquid assets starting in the first quarter of 2010 if no action is taken, and that liquidity needs through 2010 and 2011 would "significantly exceed" liquid assets on hand.
FDIC Chairwoman Sheila Bair is also preparing the "mechanics" to tap a $500 billion credit line from the Treasury Department, but is reluctant to take a step that is unpalatable to bailout-weary taxpayers.
"I do think that the American people would prefer to see an end to policies that looked to the federal balance sheet as the remedy to every problem," Bair said on Monday.
Banks are almost certainly going to fill in the agency's balance-sheet hole. Under the proposed scenario, the hope is they'll be paying early instead of paying more.
--
Written by Lauren Tara LaCapra in New York
