The Federal Deposit Insurance Corporation decided today to virtually eliminate deposit insurance premiums for most commercial banks after concluding that its insurance fund had enough money to cover bank failures in the coming months.
Bankers welcomed the unanimous decision by the agency’s board, which will take effect on Jan. 1 and save them $946 million a year in premiums. Industry lobbyists waged a vigorous campaign to eliminate the premiums, arguing that they were unnecessary after the Bank Insurance Fund late last spring reached its Congressionally mandated target of $1.25 in reserves for every $100 of insured deposits.
Ricki Helfer, the chairman of the F.D.I.C., said premiums needed to be reduced because of the banking industry’s current health, the economy’s strength and the expectation of F.D.I.C. examiners that few banks would fail soon. Premiums will still be collected for some banks with risky business practices and less solid finances. Still, the income from premiums as a share of insured deposits will fall to the lowest level in the 62 years of Federal deposit insurance.
Consumer activists and even some of the board’s members criticized the decision. “Under a better system, we would be allowed to build up a surplus in better times that we would run off in bad times,” said Jonathan L. Fiechter, the acting director of the Office of Thrift Supervision and one of the four sitting members of the F.D.I.C.’s board.
But Mr. Fiechter voted for the premium reduction anyway, saying that current law left the board with little choice once the fund had clearly met the target for reserves.
Ralph Nader, the consumer activist, contended that the $25.08 billion now in the Bank Insurance Fund could be exhausted easily by the collapse of one or two of the giant banks now forming from the industry’s many mergers, leaving taxpayers with the burden of paying for any further failures. Today’s decision “is a prescription for another round of corporate bank welfare,” he said.
At some point, I don’t know when, idiots like me are going to be ignored and the folks who time and time again have been proven right will be given a say. And Jonathon Fiechter, who knew what he was doing but voted the wrong way anyway, deserves a special kick in the junk. Oh- look! Ari Fleischer, who spent the last eight years either being wrong or lying about everygoddamnedthing, is being rewarded with another appearance on Hardball.
When I was in the Army, a popular phrase was “F— Up, Move Up,” because the people who screwed up always seemed to get promoted, while the ones who were right are either punished, ignored, or some combination of the two. I am glad to see this is the guiding principle for our government, too.
*** Update ***
From the comments:
I think there’s a misunderstanding here. The premiums were reduced in 1996 because the fund had reached its statutory reserve level. That wasn’t so much the problem. Everybody was happy. (Except the thrifts, which had by no means reached theirs—but that’s another story).
The problem really came about five years later (2000/2001) when the FDIC realized that many changes in banking (such as increading levels of consolidation), plus inflation, had made that reserve level too low, and there was no way for them to change it. Also, newer banks, which themselves had never paid any premiums, were unfairly coasting on the previous premiums made by older banks. And many other complications with the system.
That’s why in 2001 they lobbied congress for statutory authority to have flexible control over the reserve levels, to match the actual state of the banks. Congress did not make banks start paying premiums again until 2006. So, as Bair, puts it, “five years were wasted.”
It is more complicated than just that they stopped collected premiums, with apologies to Fiechter.