Small local banks paying for problems caused by big banks

Marion County banks remain strong, but they are caught in Federal Deposit Insurance Corp. premium increases that could go 30 times higher for some banks than two months ago, according to banking leaders.

Jim Hefley, chairman of the county bankers? association and president of Marion National Bank, said county banks share the sentiment of most banks outside the realm of the biggest ones on the East Coast: ?We didn?t cause the problem, but we have to help pay for it.?

Hefley said it is in the interest of all banks to keep the FDIC strong. It is the institution that insures depositors? accounts up to $250,000 each.

?But it is a bitter pill to swallow,? Hefley said. ?It impacts our earnings for the year. We have to take it from profits. What else can we do with it??

Earl McVicker, head of Hutch?inson-based Central Financial Corp., predicts the premium banks pay to be part of the FDIC could be 30 times that what it was a few months ago.

McVicker, chairman of the American Bankers Association in 2006-07, has testified before Congress and conferred with Federal Reserve chairman Ben Bernanke.

Hefley cited coverage of McVicker?s viewpoints by the Associated Press and WIBW Broadcasting as representative of Kansas bankers.

When they visited in 2007, McVicker said he told Bernanke and his fellow board members weren?t worried about subprime mortgages because they ?didn?t sell them.?

McVicker said Bernanke was concerned, and his fears came to fruition when companies such as AIG, which insured mortgage loans, ended up getting government bailouts.

Even so, McVicker said, community banks are secure, and mostly free of the worries that plague AIG, Citibank and Goldman Sachs and others.

The FDIC is an insurance corporation reacting to risk in the national economic situation, much like other insurers would react to a hurricane in the Gulf, or rising automobile collisions, according to bankers.

?The FDIC gets no money from the government,? said Scott Dueser, a banker in Abilene, Texas. ?It?s a fund we have built totally on our own. The money comes from the banks. We are the ones who fund the FDIC. When a bank fails, no tax dollars are used, and no insured depositor has ever lost money.?

American Bankers Associa?tion members say they learned in a recent conference that the FDIC has about $42 billion.

The FDIC has had a $30 billion line of credit with the U.S. Treasury since 1989, which many bankers say should be raised to $100 billion to lower a one-time bank assessment.

Hefley said Marion County account holders remain completely safe, but as for the banks, ?We have to live with it.?

The ABA says a one-time assessment of 20 cents on every $100 of deposits would be a disincentive to raise new deposits, therefore lowering banks? abilities to lend.

The ABA said other FDIC premium payments are based on a sliding scale according to an individual bank?s risk assessment.

More from Hillsboro Free Press
Deaths (May 11, 2011)
? alvin boese, 94, a dairy and grain farmer, died May 1...
Read More