It’s been an interesting week so far in the bank marketplace, particularly as the FDIC finally announced the framework to shore up its cash reserves – by turning to banks, and not U.S. Treasuries, for funding.
Primarily, the FDIC will pump up its bank insurance fund by requiring financial institutions to “prepay” their FDIC insurance fees. Here’s what the agency said in a press release issued Tuesday.
“The Board of Directors of the Federal Deposit Insurance Corporation today adopted a Notice of Proposed Rulemaking (NPR) that would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC estimates that the total prepaid assessments collected would be approximately $45 billion. The FDIC Board also voted to adopt a uniform three-basis point increase in assessment rates effective on Jan. 1, 2011, and extend the restoration period from seven to eight years.”
FDIC Chairwoman Sheila C. Bair said, "First and foremost, bank customers should know that their insured deposits have and always will be 100% safe, no matter what. This commitment to depositors is absolute. The decision today is really about how and when the industry fulfills its obligation to the insurance fund. It's clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem. In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer. This proposal is a vote of confidence for the banking industry's resilience, and it will continue to recover its strength as we work through the significant challenges ahead."
Stability is critical in the banking and finance markets, so the FDIC announcement should be welcome news for both banks and their customers. Whether that has any impact on good rate deals (and it sure can’t hurt) remains to be seen. But we can say that, week-by-week, bank deposit deals seem to be getting better and better.