September 11, 2015 - CBAI commented on the Federal Deposit Insurance Corporation’s Notice of Proposed Rulemaking to refine the deposit insurance assessment system for small depository institutions ($10 billion in assets and under). The Federal Deposit Insurance Act requires the FDIC Board to establish a risk-based deposit insurance system applicable to small depository institutions to more accurately reflect risk. CBAI requested the FDIC consider our observations and incorporate our recommendations into the revised assessment system.
CBAI’s observations and recommendations included the following.
- The greatest risk to the Deposit Insurance Fund disturbingly remains the largest too-big-to-fail banks, and addressing that risk should be the FDIC’s number one priority.
- Every opportunity needs to be embraced that reduces the massive and growing regulatory burden on community banks. The FDIC and other banking regulators must recognize that their current regulatory reform efforts are insufficient to stem the harmful tides of consolidation and concentration, and much more needs to be done.
- CBAI remains concerned about FDIC picking winners and losers in the financial system, and the potential for harmful consequences of the proposed assessment system on residential mortgage, C&D, C&I, and Lease lending, particularly where community banks now have a natural competitive advantage in originating and servicing these loans in their communities.
- CBAI recommended the FDIC incorporate the proposed core deposit/asset ratio in the assessment system, but continue separate treatment for reciprocal deposits from traditional brokered deposits by defining core deposits to include reciprocal deposits.
- CBAI recommended that a formal review, outreach and modification process be included in the rule, after several quarters of actual experience with the new system, so that community banks are aware of the FDIC’s recognition of the potential for, and that there is a mechanism to raise and for the FDIC to address, harmful consequences.
- Finally, CBAI recommended a period of restrained enforcement for banks significantly impacted by the new system so they will have time to address and the resolve the issue of raising additional capital to maintain their capital ratios. Read Comment Letter.