Dodd-Frank ‒ The ‘Gift’ That Keeps on Taking

An issue related to the Dodd-Frank Act that has received little discussion to date is a requirement that the Federal Deposit Insurance Corp. impose a surcharge on banks over $10 billion in assets, once the fund reaches 1.15 percent of insured deposits, to boost the fund to 1.35 percent of insured deposits by Sept. 30, 2020. The FDIC has sought input from the banking industry and public at large regarding methods by which to meet this requirement. Not surprisingly, the industry is divided on how to best accomplish this mandate.

The FDIC has suggested that perhaps the surcharge be assessed over eight quarters. While many banks agree with that time frame, the American Bankers Association, the Clearing House Association and the Financial Services Roundtable have recommended in a joint comment letter that the timing be stretched out over 14 quarters. The organizations did note in their letter that about 60 percent of their member respondents support this time frame, leaving 40 percent that favor some other option. Some of the larger banks favored a one-time-only charge. One bank specifically favored a one-time-only charge, to be assessed in 2020.

The Independent Community Bankers of America has indicated in a comment letter that the eight-quarter period seems reasonable, but that it favors a four-quarter period. Small banks will be able to utilize credits once the fund reaches the 1.35 percent target; those credits are a reward to smaller banks for helping to replenish the fund. Thus, the sooner the fund reaches 1.35 percent, the sooner small banks can use their credits.

Yet another opinion has been voiced by the Mid-Size Bank Coalition of America, which represents banks between $10 billion and $50 billion in assets. This group is asking the FDIC to impose the surcharge only on the highly complex banks, contending that the current proposal “places a disproportionate amount of responsibility on mid-size banks for subsidizing the cost of bank failures.” The argument seems valid, considering that $10 billion banks are being treated the same as trillion-dollar banks.

The Dodd-Frank Act is the gift that keeps on giving ‒ or in the case of banks, the gift that keeps on taking. It punishes all banks of different sizes and business structures and charters at different times, on different issues. There still remains about 25 percent of the act to be promulgated through rule-writing. In July we will hit the six-year mark since DFA was signed into law by President Obama. Perhaps lawmakers will have it figured out by the time Dodd-Frank turns 10 years old!

The board of the FDIC certainly has a big decision coming up soon on this surcharge, as it appears that the 1.15 percent of insured deposits level will be met during 2016. As that time draws nearer, this topic will surely be debated by bankers throughout the country, representing institutions of all different sizes.

– S. Joe DeHaven

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