Georgia banks brace for one-time FDIC fee

Georgia banks, already struggling amid the recession, are girding themselves for another blow to their bottom lines: higher deposit insurance fees.

The Federal Deposit Insurance Corp. has proposed levying a one-time fee on banks nationwide to boost its reserves, which have been depleted by bank failures in the past year. The fee — 0.2 percent of a bank’s total deposits — is more than double the annual fee banks are already paying into the fund.

It’s far from chump change. A Georgia community bank with $200 million in deposits would face a $400,000 tab. Georgia banking leaders estimate the total cost to the state’s banks at about $405 million, more than the $320 million those banks earned all of last year. Nearly half of the 329 banks based in Georgia reported losses last year.

Georgia bankers say they understand the need to replenish the FDIC fund, but many are not happy with the proposed plan for doing so. Chuck Lewis, president and CEO of One Georgia Bank in Atlanta, said it’s not fair to force small banks like his to pay up when big Wall Street banks are to blame for the financial crisis.

“We didn’t cause the problem, but now we’re being asked to pony up and pay into the insurance fund,” he said. “It’s not right.”

Some experts expect banks to pass some of the costs on to customers in the form of higher fees and possibly lower interest rates.

Joe Brannen, president of the Georgia Bankers Association, said the one-time fee is far too big a hit, particularly at a time when the FDIC and other regulators are urging banks to shore up their capital reserves. He said the FDIC could take steps to ease the pain, such as phasing in the fee over time or even issuing bonds to raise new funds.

The one-time fee “would take over $400 million out of Georgia banks at a time when the banking industry needs that money to strengthen their balance sheets and also for new lending,” Brannen said.

The FDIC has not made a final decision. Bankers and other interested parties had until Thursday to submit written comments. FDIC officials have indicated the fee could be reduced if Congress approves legislation that would more than triple the line of credit the FDIC has with the U.S. Treasury Department.

The FDIC needs to rebuild its deposit insurance fund, which since the start of 2008 has fallen from $52 billion to $18.9 billion amid a wave of bank failures. The drop-off includes $22 billion set aside for possible failures this year.

Since the start of 2008, 46 banks have failed nationwide including nine in Georgia — more than any other state. The FDIC says it expects to pay $65 billion over the next five years to cover bank failures.

The insurance fund isn’t funded by taxpayers but by banks, which pay a yearly fee in return for obtaining deposit insurance. The fee brings in about $12 billion a year, said David Barr, an FDIC spokesman. The proposed one-time assessment would raise $15 billion.

Barr said the fund isn’t in any danger of running out of money, noting the $22 billion set aside to cover failures this year. The FDIC also has a

$30 billion line of credit with the Treasury Department.

“What’s important not to be lost in this debate for depositors, is the FDIC has always and will always meet its commitment to protect their savings,” Barr said. “In our 75 years of insuring banks, not a single customer has lost a single penny of insured deposits due to a bank failure, and that’s not going to change.”

The proposal has stirred outrage nationwide, but Barr bristles at the criticism. While the industry’s profits are down, Barr said banks maintain a “very thick” capital cushion — about $1.3 trillion overall — they can tap to pay the fee. And he noted many banks reaped huge profits in recent years during the real estate boom and paid out huge dividends to shareholders.

Like any business facing rising expenses, banks may pass part of the cost to customers. However, doing so could erode market share in an already challenged economic climate.

“People are going to rethink their free checking programs, because obviously banks are limited as to what they can absorb,” said Palmer Proctor, president of Fidelity Bank, one of the largest community banks in metro Atlanta.

Proctor said Fidelity has no plans at this time to pass any of the expense to its customers.

Georgia bankers have taken their complaints to the state’s congressional delegation. U.S. Sen. Johnny Isakson (R-Ga.) is pushing for other solutions, such as easing accounting rules that have forced banks to take big paper losses by valuing property at today’s distressed market rates. That change, he said, could strengthen many banks and reduce the number of failures.

Levying a one-time fee at such a difficult time is “just the wrong thing to do,” Isakson said. “The regulatory body that’s there for the protection of everybody is actually making a regulatory decision that’s making it difficult for some banks to do business and in some cases to stay in business.”