One banker I talked to said this caused his FDIC insurance fee this year to go up ten-fold. He said his bank was profitable, so it wouldn't cause them major grief, but, he said, there are many banks on the tipping point right now--banks that, given a shock like this, will go under. His prediction? 1500 more banks out of business as a result of the government charging them to help banks that are in danger of going out of business.
Here is the post from Insurance News:
In a stunningly stupid move, the FDIC, led by Sheila Blair, has recommended the assessment of a one time 20 basis point fee on bank deposits. It will use this to pay for its projected $80 billion in bank failures for 2008 through 2013.
This is clearly ridiculous.
To start with, the government is pumping hundreds of billions of dollars into the banking system, and trillions of dollars into the country at large. This assessment will hit large and small, strong and weak, banks alike. So it’s sort of like taking from the rich and giving to the poor. Recycle, and rinse. Take from all banks, and pump that money back into the banks that could not survive on their own. When that money runs out, repeat, and put more money into the banks that could not survive on their own (Citi?).
Why weaken the strong banks, who will either lose capital through this, or just pass the costs in the form of lower yields to consumers? Take the money from TARP and whatever the next round of $700 billion financing is called, and fund the FDIC properly. No one said that the government is supposed to fund the FDIC, but no one said that these times are normal. After all, the risk modelers in the FDIC obviously didn’t contemplate the fall of housing prices and the subsequent carnage (they didn’t charge the banks enough to properly self-insure).
Should all banks have to pay the price? Think of the bank that is muddling its way through this Great Recession. It gets hit with this fee and teeters a bit more. The government is not going to fund it, because it’s not a monolith that will cause armageddon upon failure. What happens?