WASHINGTON — The country's largest and most powerful banking groups said that the Federal Deposit Insurance Corp.'s plan to raise deposit insurance assessment rates next year is premature.
The FDIC said in June that it would
Banks, however, argue that the FDIC hasn't taken into account interest rate hikes that the industry thinks will complicate the math when it comes to the pandemic-era rise in deposits.
In a joint letter, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Independent Community Banks of America, Mid-Size Bank Coalition of America and National Bankers Association asked for six more months for the agency to consider recent economic data.
"To move forward with an increase now would be highly irresponsible in light of the negative consequences for credit availability as we enter a period of economic uncertainty and a potential recession," the groups said.
Since March, the Federal Reserve has raised its target range for the federal funds rate, and is expected to continue tightening. In response, the groups say, depositors are shifting into money market mutual funds. COVID-19 stimulus programs have also ended, and the household savings rate has fallen below average, and the Fed has also begun to shrink its balance sheet by allowing its security holdings to mature.
"When the Federal Reserve does not roll over a maturing security, someone else buys the new security that the Treasury issues," the bank groups said. "If that someone else is not a bank, bank deposits go down."
Central to the banking groups' arguments is an
The groups also argue that the FDIC's goal, to return the DIF to 1.35%, shouldn't even be the target anymore. The letter says that it "no longer aligns with the condition of the banking industry," and "does not justify an assessment rate increase at this time."
The FDIC set that target more than a decade ago, the groups said, and it's not mandated by law, so given the significant changes to the regulatory environment in the banking industry in the meantime, the banking industry suggests that the rate should be changed.
"That analysis is practically irrelevant today, considering the momentous enhancements in prudential regulatory standards in the ensuing years, as well as considerable strengthening of soundness across the banking industry," according to the letter.
In a separate letter, the ICBA said that the increase would be especially bad for community banks. It also joined groups representing other-sized banks in the joint letter.
"We write separately, however, to emphasize that the proposal is further flawed because it deviates from the agency's past assessment practices," the ICBA said in its letter. "Until now, the FDIC has properly recognized small banks with fewer than $10 billion in assets should not be subject to the same assessments levied against the nation's largest, most complex banks."
The community banks group said it worries that the increase will be more impactful to small banks' earnings and capital than the FDIC assumes, and asks that the agency tailor assessment rates to bank size.
"This proposed increase will inevitably drive up the prices consumers pay for bank products and services across the entire banking industry, and will negatively impact community banks' abilities to lend money to their local communities," the ICBA said in its letter. "If any assessment increase is warranted, it should be imposed on the institutions that pose the most risk to the DIF — not community banks. Instead of collecting increased deposit insurance assessments from small banks, the FDIC should require Too-Big-To-Fail institutions to pay a systemic risk premium to the DIF that is large enough to pay for the substantial risk of insuring these institutions."
The pushback from the banking industry isn't unexpected, as it will raise costs for banks. The FDIC does have until 2028 to hit the statutory minimum, and some analysts see the possibility of the delay if certain politically influential groups make a strong enough argument.
"While there may be room for a compromise, the current FDIC — with Gruenberg in charge, and CFPB Director Rohit Chopra and OCC chief Michael Hsu as board members — isn't seen as friendly to banks," Ian Katz, a director at Capital Alpha Partners, said in a note. "But the fact that community and mid-sized lenders are among the proposal's critics puts some pressure on the FDIC to consider the banks' request."
