Community Bankers Association of Illinois

FDIC Proposes Prepayment Plan
CBAI Has Concerns and Will Continue to Push for Asset Based Assessments
09/30/09

CBAI appreciates the FDICís willingness to consider alternatives to another special assessment so that Illinoisí community banks can continue to serve their customers and avoid the final stress such an assessment would create. Another special assessment would have been the worst of the options for providing funds and liquidity to the DIF, by taking capital out of the profession in this difficult period. CBAI also appreciates the FDIC extending the time period for restoring the DIF from seven to eight years.

Although the prepayment option has the virtue of drawing from available cash and liquidity in the profession while not immediately reducing capital, CBAI has some serious concerns with the proposal. The most serious concern is the fact that the FDIC proposal will base the pre-paid assessment on domestic deposits instead of assets minus tier one capital. CBAI will strongly encourage the FDIC to change the final rule and base any pre-paid premiums on assets minus tier one capital. Community banks, which pose much less risk to the DIF, should not be forced to shoulder a disproportionate share of the assessment. Instead, the large, too-big-to-fail institutions that participated in risky lending and investment practices that precipitated this financial crisis should be required to pay their fair share. Changing this assessment method for the first special assessment saved the nationís community banks over a billion dollars, and that is why CBAI continues to support HR 2897 and joins the ICBA to urge members of congress to support and co-sponsor this measure.

Further, CBAI questions whether a three-year prepaid assessment for banks may be too long and believes that the FDIC should consider a discount for banks that prepay. In short, there are many questions surrounding the prepayment option.

CBAI is now consulting with the ICBA on this proposal and will soon urge community bank officers, directors, and customers to contact the FDIC and Members of Congress to urge them to consider our positions on this important matter. Stay tuned.

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