Will the FDIC and NCUSIF insurance affect financial soundness?

Posted: March 16, 2010 in Uncategorized
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Like most downturns in the economy, revenue streams of banks and credit unions are impacted and the governing bodies that insurance the safety and soundness of our deposits are no different. 2009 was a year that added additional assessments for all banks and credit unions. These assessments will directly impact the bottom line. How each handles these assessments will be telling.

Credit Unions

The Stabilization Fund or NCUSIF was created on May 20, 2009. By implementing the Stabilization Fund, the NCUA Board is now able to use it to help stabilize the corporate credit union system which has impairments reaching $1 Billion. The corporate credit unions help to support the credit unions. Investments into mortgage backed securities are continuing to show losses and may continue for the next few years based upon a study by PIMCO.

2010 NCUSIF & stabilization premiums predicted

NCUA expects failures to increase in 2010 and is estimating credit unions will be assessed between a 0.15 and 0.40 percent premium in 2010 based upon deposits.

Banks

On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009.

FDIC Historic Rates Schedule (Banks)

Brief History of Deposit Insurance (Banks)

Assessment rates detailed below are annual rates in basis points – or cents per $100 of deposit insurance assessment base.

Starting April 1, 2009 and currently in effect

Total Base Assessment Rates for established institutions (insured 5 or more years)

Risk
Category
I
Risk
Category
II
Risk
Category
III
Risk
Category
IV
Initial Base Assessment Rate 12 – 16 22 32 45
Unsecured Debt Adjustment (added) -5 to 0 -5 to 0 -5 to 0 -5 to 0
Secured Liability Adjustment (added) 0 to 8 0 to 11 0 to 16 0 to 22.5
Brokered Deposit Adjustment (added) N/A 0 to 10 0 to 10 0 to 10
Total Base Assessment Rate 7 to 24.0 17 to 43.0 27 to 58.0 40 to 77.5

Total Base Assessment Rates for newly insured institutions (those insured less than 5 years) without a CAMELS composite rating

Risk
Category
I
Risk
Category
II
Risk
Category
III
Risk
Category
IV
Initial Base Assessment Rate 14 22 32 45
Secured Liability Adjustment (added) 0 to 7 0 to 11 0 to 16 0 to 22.5
Brokered Deposit Adjustment (added) N/A 0 to 10 0 to 10 0 to 10
Total Base Assessment Rate 14 to 21.0 22 to 43.0 32 to 58.0 45 to 77.5

Total Base Assessment Rates for newly insured institutions (those insured less than 5 years) with a CAMELS composite rating

Risk
Category
I
Risk
Category
II
Risk
Category
III
Risk
Category
IV
Initial Base Assessment Rate 12 – 16 22 32 45
Secured Liability Adjustment (added) 0 to 8 0 to 11 0 to 16 0 to 22.5
Brokered Deposit Adjustment (added) N/A 0 to 10 0 to 10 0 to 10
Total Base Assessment Rate 12 to 24.0 22 to 43.0 32 to 58.0 45 to 77.5

It will be harder for the smaller banks and credit unions to absorb these kinds of assessments and keep profitable. The longer this drags on, the deeper the pain unless new revenue streams are innovated to brunt the realities of the day.

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