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IBAA SUPPORTS FDIC INSURANCE PREMIUM PROPOSAL, BUT IMPROVEMENTS NEEDED TO ENHANCE FAIRNESS

 IBAA SUPPORTS FDIC INSURANCE PREMIUM PROPOSAL,
 BUT IMPROVEMENTS NEEDED TO ENHANCE FAIRNESS
 WASHINGTON, July 21 /PRNewswire/ -- The Independent Bankers Association of America (IBAA) said today that the FDIC's risk-based premium proposal establishes a good starting point for such a system, but basic changes are needed to enhance its fairness.
 In a comment letter to the agency, IBAA President Bob Hawkins recommended that the risk-based insurance premium spread between the best banks and the worst banks be 9 cents instead of the FDIC's proposed 6-cent difference. "This matrix would offer banks a greater assessment rate incentive, without unnecessarily complicating the transitional phase," noted Hawkins.
 The IBAA also recommended that a fourth capital classification category be added to differentiate between undercapitalized institutions and those that are significantly undercapitalized or critically undercapitalized.
 "It is unfair to group undercapitalized banks, which have a much greater chance of becoming adequately capitalized, with those institutions in the lower categories," said Hawkins, chairman of Southern Commercial Bank in St. Louis. "If undercapitalized institutions are grouped with the lowest-category institutions, this reduces the 'carrot' effect of risk-related premiums to induce safety and soundness improvements."
 Under the FDIC proposal, a bank's deposit insurance premium assessment would be based on its capital ratio and supervisory evaluation. Hawkins noted that IBAA strongly supports the use of capital ratios to determine a bank's assessment rate, since it is an objective measure of its condition.
 "We believe that it is imperative that a risk-based assessment system be based on objective factors, to the maximum extent possible," he said. "The FDIC should exercise extreme caution when using information from off-site supervisory analyses to assign the risk classifications. The use of supervisory evaluations incorporates an unacceptable judgmental aspect to the risk-based assessment system."
 Hawkins added that review procedures must be developed that allow banks a reasonable opportunity to appeal disputed risk classifications. "We recommend that the FDIC establish procedures to be followed by both the insured institution and regulator when a risk classification is disputed," he said. "In addition, the IBAA recommends that the FDIC consider establishing a formal insured institution advisory board to review disputes."
 He noted that a risk-based assessment system should better reflect the risk an institution presents to the Bank Insurance Fund. "Such a system would help mitigate some of the problems of the current flat-rate assessment system, which places small banks at a competitive disadvantage for the coverage provided," he said.
 The inequity has worsened, Hawkins continued, since passage of the FDIC Improvement Act (FDICIA), which mandates the use of least- cost resolutions. As of June 29, 1992, uninsured depositors this year lost money in 38 of 66 bank failures. FDICIA also protects large banks by allowing regulators to invoke "systemic risk," which means that large bank depositors will be afforded 100 percent coverage not available to small bank depositors.
 IBAA is the only national trade association that exclusively represents the interests of the nation's community banks.
 -0- 7/21/92
 /CONTACT: Steve Verdier, senior legislative counsel, or Viveca Ware, associate director of bank operations, Independent Bankers Association of America, 202-659-8111/ CO: Independent Bankers Association of America ST: District of Columbia IN: FIN SU:


DC -- DC024 -- 1412 07/21/92 13:52 EDT
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Date:Jul 21, 1992
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