Federal Deposit
Insurance Corporation

From: Neal Searle 
Sent: Wednesday, November 05, 2008 8:01 AM
To: Comments
Subject: FDIC Premiums/CDARs and Brokered Deposits 

Robert E. Feldman, Executive Secretary
Attention: Comments, Federal Deposit Insurance Corporation
550 17th Street, NW., Washington, DC 20429.

Dear Mr. Feldman:

My organization was started in July 2005.  We are $50M in assets and have spent $40,000 on FDIC insurance thus far in 2008.  I have my overhead expenses razor-thin, and this organization simply can not afford increases in our deposit insurance premiums as we can not, in this environment, pass the charges on to our clientele.

I appreciate the opportunity to comment on the FDIC’s proposal to raise premiums in order to recapitalize the insurance fund and to change the risk-based premiums classification system. A strong FDIC insurance fund is important to maintaining depositor confidence and I support changes to the premium calculation that truly reflect the risk of loss to the FDIC. However, as a healthy bank that had nothing to do with the current problems, I believe that the aggressive recapitalization proposed would be counterproductive and would limit my bank’s ability to meet local credit needs. In addition, I believe that the proposal should remove the Certificate of Deposit Account Registry Service (CDARS) from inclusion in the brokered deposits ratio as these deposits allow my bank to retain customers and keep funding local.  Every CDARs account within my organization is 100% a relationship account.  If we can not provide this option - the clients, who are very concerned about the financial industry in general, would have no option but to split deposits among many institutions and directly affect my liquidity and my ability to lend.

The proposal would significantly raise premiums assessments to aggressively recapitalize the insurance fund in five years to over 1.25 percent of insured deposits. Yet the Federal Deposit Insurance Reform Act requires the FDIC to rebuild the fund to 1.15 percent in five years and to take longer when there are “extraordinary circumstances.” There is no question that these are extraordinary circumstances and excessively high premiums only reduces the resources that I have available to lend in my community.  It is also counter to other efforts by Congress and the Treasury to stimulate lending. Premium rates should be substantially less than what is proposed.  Most insurance companies work on much longer timelines to recover from natural disasters.  I would claim that this has been a disaster - and the recovery of the insurance fund should be allocated over a much longer period than 5 years.

While I too am troubled that some recent failed or troubled banks have used brokered deposits to grow rapidly and fund risky assets, it is unfair to include CDARS deposits in with other, more volatile, forms of brokered deposits. We use CDARS to satisfy the needs of our depositors that want the surety of deposit insurance protection, but maintain the relationship with our bank. CDARS allows us to meet that need and to keep the funding within our community.  Without this, these depositors are likely to withdraw money from our bank and spread it on their own or through brokers to banks that truly are higher risk and paying high interest rates.  Moreover, some of our depositors will use the Internet to find high rates around the country – and these types of volatile deposits are not even covered by the proposed rule.

Thus, the FDIC should exclude CDARS from the calculation of brokered deposits.  This method of funding is not risky and any concerns should be raised as part of the examination process – which is included in the premium calculation.  It is patently unfair to penalize banks like mine that use these stable sources of funding. 

Please consider the above. These areas are critically important to the financial stability of my institution.  I look forward to your reply.

Sincerely,

Neal J. Searle
President
Bank of Auburn Hills
1988 N. Opdyke Road
Auburn Hills, MI  48326