Facing mounting strains from a rise in U.S. bank failures, the Federal Deposit Insurance Corp. will likely increase the assessment fees it charges banks for federal deposit insurance early next year. The move will affect the earnings of all Connecticut financial institutions and be particularly burdensome for community banks with narrower profit margins, analysts said. The FDIC, which insures deposits in banks and thrifts up to $250,000, said last week that its insurance fund lost about $10 billion, or 24 percent of its value during the third quarter. The fund shrunk to $34.6 billion on Sept. 30 from $45 billion on June 30, primarily due to money it set aside for expected bank failures. Twenty-two banks have failed so far this year. The fund’s reserve ratio equaled 0.76 percent on September 30, down from 1.01 percent at the end of June, pushing it below the mandatory minimum ratio of 1.15 percent. When the reserve ratio falls below that level, the FDIC must replenish the fund within five years. To do that, it is expected to increase fees paid by banks for the insurance coverage, beginning next year. James Abbott, an analyst at Friedman, Billings, Ramsey & Co., estimates that the FDIC will nearly double its fees to generate $60 billion between 2009 and 2013. That will help offset the nearly $40 billion in losses he expects the fund to absorb over the next five years.
“It will have a very significant impact,” said William Attridge, president and CEO of Connecticut River Community Bank in Wethersfield. “Some banks are going to see their rates double.” Attridge said FDIC insurance rates have already gone up once this year for his bank and will likely be raised again next year. He said his bank has paid about $90,000 for the insurance coverage, but he expects the bill to climb to nearly $180,000 next year. Connecticut River Community Bank, which has more than $170 million in assets, reported net income of $120,553 in the third quarter. The expected increase in FDIC fees would erode earnings significantly. “I don’t think it’s going to be unmanageable, but clearly it’s going to impact earnings,” Attridge said. The higher fees are especially troubling to smaller banks in Connecticut because they were not responsible for the current hit the insurance fund is taking, he added. Damon DelMonte, a banking analyst at Keefe, Bruyette & Woods Inc. in Hartford, said he expects rate increases to take place during the first quarter of 2009. He said it may cause some community banks that have been performing adequately through the financial crisis to consider mergers with larger banks that are in a better position to handle the fee increases. “Even if banks aren’t struggling with their capital or asset quality, it may force them to merge,” DelMonte said.