WASHINGTON - Several large banking companies, including JPMorgan Chase & Co., Wachovia Corp., and PNC Financial Services Group Inc., oppose a Federal Deposit Insurance Corp. plan to require larger financial institutions to facilitate quicker payouts in the event of a failure.
The companies argue that the proposal, which would force them to upgrade their data systems to better distinguish between insured and uninsured accounts, is costly and unnecessary.
"Applying … a different set of rules to determine which consumer accounts are insurable would be a monumental task," Ronald C. Mayer, a senior vice president and associate general counsel for JPMorgan Chase, wrote in a comment letter to the FDIC.
The proposal is designed to limit the economic disruption of a large institution's sudden failure. The FDIC proposed three options for the roughly 145 banks with more than $2 billion of domestic deposits and more than 250,000 deposit accounts. All three would require the banks to put in place a system that would automatically put a hold on deposit accounts in the event of a failure.
Under one option, banks would have to give the FDIC detailed information about each depositor, as well as a unique means for identifying them and the insurance category of each account. There are eight categories, which depend on such factors as the number of account owners.
The simpler of the two other options would not require the bank to provide unique ways to identify depositors and insurance categories. It would require institutions to disclose only the information they "currently possess."
The most complex option includes everything in the first option, but it would also require the 10 to 20 largest banks to have systems in place to know the insurance status of deposit accounts at any given point of time.
Industry representatives - who generally prefer the simplest option if forced to choose - say none of the options are necessary. Most of the 24 comment letters sent to the FDIC complained about the cost of setting up a new system.
Eugene M. Katz, a senior vice president and assistant general counsel for Wachovia, wrote in his letter that the simplest option "would be the least risky and the least costly, although still presenting significant cost."
He particularly objected to the third option, which he called "wholly unacceptable." Shifting responsibility for insurance determinations entirely to banks would put an undue burden on institutions and lead to inconsistencies in the system, he wrote.
It would be "more efficient for the FDIC to develop this logic once and for application by all banks, rather than requiring each individual bank to do so," Mr. Katz wrote. "Requiring banks to develop this logic independently increases the cost and the risk that any given bank may interpret the FDIC rules and regulations in manner different than its peers, creating a potential lack of consistency."
Several questioned why the FDIC - which has not had a bank failure in more than a year - would want to put a new burden on large institutions.
"It's like requiring an annual termite inspection in a building made of concrete," said Robert Davis, executive vice president of America's Community Bankers.
Last week ACB, the American Bankers Association, and the Financial Services Roundtable wrote a joint letter saying the FDIC had not proven that the rule's benefits would outweigh the cost.
"Constructing, maintaining, and periodically testing the programs" in the proposed rule "solely because of the remote chance of sudden failure resembles an expensive solution in search of a very low probability problem," the groups wrote.
However, only a few companies offered a cost estimate. Christopher T. Curtis, associate general counsel for policy affairs for Capital One Financial Corp., said implementing the first option would cost at least $220,000. Mr. Curtis said his company preferred the simplest alternative.
George A. Schaefer Jr., the president of Fifth Third Bancorp, wrote that implementing the first or third option "would initially involve a multimillion-dollar investment and a lengthy implementation timeframe."
Not every letter objected to the plan. Jeffrey Morrow, the executive vice president for Dollar Bank in Pittsburgh, wrote that the proposed changes would not impose that great a burden on his institution.
His bank already keeps customer data similar to what the first option would require, he wrote.
"Dollar understands and supports the need for the FDIC to have a rapid and effective process for determining insurance coverage," Mr. Morrow wrote. "Not only does this benefit the FDIC directly, but effective performance by the FDIC also benefits the entire banking system by assuring the public of the reliability of federal insurance of deposits."
Community bankers in Nebraska and Michigan expressed hope that the proposal was a sign that "too big to fail" institutions are under increased scrutiny.
Stephen Lange Ranzini, the president of the $60 million-asset University Bank in Ann Arbor, Mich., wrote the proposal is a "necessary and reasonable cost to counteract the subsidy that the so-called 'Too Big To Fail' mantra provides to the largest banks."
The proposal has already sparked meetings with some large banking companies. According to comment letters from FDIC staff, agency representatives met Feb. 28 with Bank of America Corp. and March 7 with JPMorgan Chase to discuss the plan.
