RENEE MONTAGNE, Host:
Back in school, you may remember the kid who broke the rules and got everyone in trouble, even when they didn't do anything wrong. In one corner of our troubled financial system, some banks are protesting that's exactly what's happening to them. Chana Joffe-Walt explains.
CHANA JOFFE: Okay. Here's the one thing. The FDIC - the agency that ensures our bank's deposits, it's funded by banks. Maybe it's a name problem or something, the Federal Deposit Insurance Corporation, but lots of people seem to think it's funded by taxpayers. It's not. Every bank that's FDIC-insured has to pay a fee for that insurance, and all those fees, put them all together, they go into a deposit insurance fund that pays for bank failures. John Bovenzi is the FDIC's chief operating officer.
MONTAGNE: If you put a hundred dollars in a checking account in a bank, what the bank has to do is pay the FDIC an insurance premium.
JOFFE: Last September, October, banks watched their fellow banks begin to fall - huge ones like Washington Mutual, and small ones like the Corn Belt Bank of Pittsfield, Illinois. It kept happening. September to April 1st, 36 banks failed. And each time a bank fails, the FDIC insurance fund has to pay for everyone's insured deposits. The fund is shrinking. So FDIC jacked up the fees by a lot. Last year, Bovenzi says, the banks gave $3 billion into the insurance fund. This year...
MONTAGNE: They will pay 12, 13 billion, and we're talking about a potential special assessment that could bring the total up to 20 billion or so for the year. So it is a dramatic increase.
MONTAGNE: And it just, boom, came across the wire, if you will. And I must admit, at first, I didn't do the math in my head very well. I actually had it wrong.
JOFFE: This is Salvatore Marranca, CEO of Cattaraugus County Bank in upstate New York. The email came: Premiums are going up, everyone. And then Marranca did do the math.
MONTAGNE: And then all of a sudden, it kicked in: Well, what does this really mean? It was shocking.
JOFFE: Marranca says for his bank, the increase in fees will mean a jump from 30,000 last year to 350,000 this year. He says that's about a third of his yearly earnings.
MONTAGNE: We were p-o'ed. We were very angry that we were paying for the sins of others. Obviously, the cost of this was because other people were doing silly, imprudent, criminal things. We never got involved in subprime loans. We would never do a loan with no documentation. We didn't cause this problem. Imagine if you had to pay because your neighbor or your competitor screwed up somehow and you had to pay for it.
JOFFE: Yes, taxpayers, just imagine. Close your eyes and try to picture a scenario where you pay for the mistakes of others.
JOFFE: We didn't do it. It's not our fault. How could you raise premiums on us now, of all times?
MONTAGNE: That's the balance we have to strike, that the banking industry is responsible for the insurance fund, not taxpayers. But there's only so much that we can charge them at any given time without making their problems much worse.
JOFFE: But Bovenzi emphasizes even if they have to borrow that money, taxpayers would be paid back by banks. So you and me, we're off the hook, right? Kind of. If the FDIC is jacking up fees, how do you think CEOs like Marranca are going to make up for that loss?
MONTAGNE: Will it affect deposit rates? It has to. Will it affect loan rates? The answer has to be yes.
JOFFE: Chana Joffe-Walt, NPR News.
MONTAGNE: Chana is part of the Planet Money team, which blogs and podcasts about economics at npr.org/money.
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