Local banks angry they're paying for Wall Street's greed

By Linda Shen
Bloomberg News
Friday, March 6, 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=anmrn4H8hXfw&refer=e...

TCF Financial Corp., the Wayzata, Minnesota-based bank that never made a subprime loan and hasn't lost money since 1995, is asking why it should help clean up the mess made by Wall Street.

"I'm kind of bitter," said William Cooper, chief executive officer of the 448-branch bank, adding that over the years TCF has invested about $1 billion in the Federal Deposit Insurance Corp.'s fund that guarantees bank deposits. "We pay for the excesses of our competitor over and over again."

TCF is among more than 8,300 banks and lenders insured by the FDIC facing increased fees and a one-time "emergency" charge designed to raise $27 billion this year for the agency's depleted coffers. Community banks may take a 10 percent to 20 percent hit to 2009 earnings even if the FDIC halves that charge, said Camden Fine, president of the Independent Community Bankers of America.

The ICBA and its 5,000 mostly locally owned member banks are rebelling against the costs, as well as curbs on pay and business practices imposed on recipients of U.S. capital after public outrage over bonuses and perks. Community banks rely more on deposit funding, so they suffer a "much heavier burden" as a result of deposit insurance proportionate to size than peers such as New York-based Citigroup Inc. and Wells Fargo & Co., with its headquarters in San Francisco, Fine said.

... 'Incompetence and Greed'

Community lenders "are feeling like they are paying for the incompetence and greed of Wall Street," Fine said this week in an interview.

The ICBA encouraged its members to flood the FDIC with letters protesting the emergency fee. Fine said he's received more than 1,000 e-mails and telephone messages from angry bankers since the FDIC approved the fee on Feb. 27.

U.S. Senate Banking Committee Chairman Christopher Dodd said he plans to introduce legislation that would temporarily raise the FDIC's $30 billion borrowing authority with the Treasury to $500 billion, with a permanent increase to $100 billion. The change may give regulators room to reduce the emergency fee, FDIC Chairman Sheila Bair said.

U.S. Representative Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said on March 5 that there is legitimate concern about FDIC fees among community banks, which the ICBA defines as "locally owned" with assets ranging from less than $10 million to "multibillion dollar institutions."

... Lower Assessment

"A number of members have been concerned about the increased assessment that's hit community banks from the FDIC in part because of failures to which they did not contribute," Frank said yesterday on the House floor. "So voting for this bill will be an important step to lowering the assessment on community banks."

The House approved a measure yesterday increasing the borrowing authority to $100 billion and making permanent the $250,000 deposit-insurance limit in the financial bailout measure enacted in October.

Without the fees, the FDIC fund might become insolvent because of a surge in bank failures, Bair said in a March 2 letter to bankers Sixteen banks have failed so far in 2009 after 25 were seized last year, most of them with less than $1 billion in assets.

FDIC-insured banks lost $26.2 billion in the fourth quarter, the first loss for a three-month period since 1990. U.S. banks and other financial companies have reported about $800 billion in writedowns and credit losses since 2007 in the worst financial crisis since the Great Depression.

... 'Quite Angry'

The FDIC fee increases are "not going to make or break a community bank, but they are having to suffer as a result, and they are quite angry," said Josh Siegel, co-founder of StoneCastle Partners LLC, which manages about $2.3 billion in assets and invests in more than 220 community banks.

"It takes a bite out of earnings," said Joseph Conners, chief financial officer of Beneficial Mutual Bancorp, the largest lender based in Philadelphia, with $2.7 billion in deposits. Conners said halving the fee would help. "It's better than paying a triple assessment, but it's still a double assessment."

FDIC assessments are set per $100 in deposits and not weighted by bank size. That's a formula that could be modified to shift the cost burden to the largest banks "that caused this train wreck," Fine said.

TCF never "securitized anything, we never engaged in any of those unscrupulous activities," said Cooper, 65. The bank pays a 25-cent quarterly dividend and applied to return $361.2 million in U.S. funds.

... TARP Stigma

More than 500 banks, insurers, and credit-card companies applied for money from the government's Troubled Asset Relief Program, which has distributed more than $290 billion to companies including Citigroup and American Express Co. While regulators encouraged both ailing and healthy banks to take TARP money, losses by big banks and pressure to cut dividends, pay and perks have stigmatized the program for others, Cooper said.

"The regulators wrongly suggested we take it," Cooper said. "Everybody who took the TARP money now is a crook and an evil character."

Lafayette, Louisiana-based Iberiabank Corp. last month became the first lender to apply to return the money, saying that TARP placed it at "an unacceptable competitive disadvantage."

"Unfortunately, healthy banks, such as ours, have been categorized with troubled banks," Iberiabank CEO Daryl Byrd said in an e-mailed statement.

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