From: Mark Lemmon [mailto:mlemmon@beobank.com]
Sent: Wednesday, October 29, 2008 12:58 PM
To: Comments
Subject: RIN # 3064-AD37
I am writing to express my concern over the proposed TLGP terms. This
program is announced to enhance liquidity and restore public confidence
in the banking industry, however, the proposed terms will likely
exacerbate the situation and drag previously strong institutions into
the mire with the struggling ones. Specifically,
1. The institutions not participating will be published on a list to
the public. If a bank is not experiencing liquidity issues and
previously didn't have a customer base that fits this mold, it will cast
a shadow on the institution as not having full FDIC coverage. The
public will likely not understand the difference and ramifications of
this plan versus existing FDIC insurance. We will be forced to pay the
additional basis points on existing deposits just to stay off of the
list. Whereas our institution has been well run and profitable, it will
ironically be at a marketing disadvantage to the institutions that got
us into this mess.
2. The institution will have to opt out of paying 75 additional bp for
guaranteed unsecured debt. Institutions that were liquid and not
experiencing problems will be forced to pay the 75bp or will be faced
with fed funds lines being cut off by correspondent banks. Again, well
run institutions will be punished just to stay in the market and their
cost of funds will be unconscionably increased...75bp is an extremely
high premium. Banks that had no problems obtaining overnight funds
prior to this plan, will simply be paying 75bp more for the same funds,
thus decreasing profitability and capital growth. If the fed continues
lowering rates as the market anticipates, prime based loan rates will
follow and an institution could experience severe margin compression
with 75bp added to the cost of borrowing. Conceivably, the 75bp
insurance premium could be higher than the effective fed funds rate
itself and would put the institution in a negative margin in many likely
scenarios.
3. The guarantee will be limited to 125% of outstanding unsecured debt
as of 9/30/08. Borrowings can fluctuate by several millions of dollars
a day. An arbitrary line at 9/30/08 will diminish liquidity for
institutions that happen to not be buying funds on that date or that
were only partially drawing on open lines of credit. For example, if an
institution had a $20 million open line but was only drawn at $5 million
on that date, eligibility would be limited to $6.25 million and the
institution would lose $13.75 million in open borrowing capacity. The
TGLP supposedly addresses this by saying that the regional offices will
decide on the limit on a case by case basis considering trends and need.
However, many institutions have spent immeasurable efforts in the past
several months to establish "dry powder" sources of liquidity for
contingency or growth and to satisfy examiners' pressure (and to
influence CAMELS ratings that would mitigate higher FDIC premiums). It
is frustrating to see all of that negated thoughtlessly by a big bank
bailout plan.
I understand the objective of the plan and appreciate the difficulties
the FDIC is facing in light of the economic and political environment.
However, the proposed terms will serve to discriminate and punish banks
that did not contribute to the problem. Banks that are profitable and
have well managed liquidity plans are being drug down to drink from the
same trough as those banks that have practiced less prudent strategies
over the past few years. Banks that didn't cause the problem or have no
need to participate in the program could ludicrously be put into a
marketing disadvantage to those institutions that should be the ones on
the defensive.
Please reconsider the terms of this plan so that a more equitable
application of the objectives can be applied and that community banks
are not disadvantaged for being operationally conservative for the past
several years. The only fair compromise is to exclude overnight fed
funds from this program altogether and go back to business as usual.
Mark Lemmon, CPA
EVP/Chief Financial Officer
Bank of Eastern Oregon
541-676-0224 Direct
541-676-0226 Fax
