FDIC-Insured Banks Must Pay Premiums Three Years in Advance
To infuse the Deposit Insurance Fund with an estimated $45 billion, on December 30, 2009, banks will prepay their regular risk-based assessments for the next three years. The Federal Deposit Insurance Corporation (FDIC) board unanimously approved the prepayment plan on November 12, 2009.
The final rule requires financial institutions to prepay their estimated quarterly assessments through 2012, which includes the fourth quarter of 2009, and all of 2010, 2011, and 2012. In addition, the 2009 third quarter premium is also due on December 30.
“Banks should prepare their balance sheets for the liquidity necessary to fund the December 30 payment. Depending on your bank’s current financial condition, this prepayment could be a substantial amount of money,” explains Neil Falken, a financial institutions principal with LarsonAllen.
Automatic exemption notifications from the FDIC
The FDIC’s new plan allows for exemptions if paying the assessments in advance would threaten the insured depository institution’s safety, soundness, or liquidity, or would create a significant hardship. The FDIC will notify banks it determines exempt by November 23, 2009.
Limited time for banks to apply for an exemption
Banks that believe paying the advanced premiums would cause an undue hardship or liquidity issues can apply for an exemption. The FDIC will consider the requests on a case-by-case basis; however, the agency does not expect to issue many exemptions.
Applications are due to the Director of the FDIC’s Division of Supervision and Consumer Protection by Dec. 1, 2009. Email applications to prepaidassessment@fdic.gov or fax them to (202) 898-6676.
If the application is accepted, the FDIC will notify the bank by December 31, 2009. The agency does not plan to communicate denials.
Estimating and booking your prepayment
The prepayment would be based on an institution’s assessment rate and assessment base for the third quarter of 2009, and it assumes a 5 percent annual growth in deposits each year. While the FDIC plan would maintain current assessment rates through 2010, effective Jan. 1, 2011, the rates would increase by three basis points across the board.
Banks would book the total prepayment as a “prepaid expense” asset and draw it down as each quarterly payment comes due. The prepaid assessment will qualify for a zero risk weight under the risk-based capital requirements.
When estimating the prepaid assessment amounts, Falken recommends taking advantage of the FDIC’s user-friendly assessment rate calculator.
Overpayments
Under the final rule, any overpayments not exhausted after collection of the amount due on June 30, 2013, will be refunded to the institution, rather than on Dec. 30, 2014, as originally proposed. The FDIC may return any remaining prepaid assessment to the institution sooner if liquidity needs allow.
Helpful FDIC resources
For more information, contact Neil Falken at
nfalken@larsonallen.com or 612-376-4532, or a
financial institutions principal in your region.