While expressing support for the purpose of FDIC’s proposal to revise premium assessments for banks with under $10 billion in assets, ABA in a comment letter Friday also recommended several changes.
“ABA appreciates the intent to make the ‘small bank assessments’ system more forward looking,” the letter said, noting that much has been learned from the 500-plus bank failures since the current system was developed in 2006. “However, we question whether some of the proposed changes would reliably differentiate risk of failure among banks through future economic cycles.”
ABA expressed support for the proposal’s elimination of the CAMELS-by-capital risk categories and application of a uniform assessments formula, which would avoid a jump in assessments for banks in certain circumstances. But the formula’s proposed extreme increase in weighting for the tier 1 leverage ratio would unfairly penalize “well capitalized” banks that do not hold excess capital. ABA recommended it be aligned with the weighting in the current formula.
In addition, ABA commented, the FDIC should reconsider formula factors like the loan mix index — which penalizes certain loan concentrations associated with recent bank failures, regardless of a bank’s underwriting quality or risk hedging — and the measures of core deposits and one-year asset growth. Instead, the proposed formula should give more weight to a bank’s CAMELS rating. “No mathematical formula … can gauge the performance and condition of an individual bank, and the potential for it to fail in the future, as well as supervisors do during on-site examinations,” ABA said. For more information, contact ABA’s Rob Strand.
