FDIC Federal Register Citations

From: Debbie Halfacre

Sent: Monday, November 10, 2008 11:07 AM

To: Comments

Subject: RIN No. 3064-AD35

Mr. Robert E. Feldman

Executive Secretary

Federal Deposit Insurance Corporation

Dear Mr. Feldman,

I'm writing to comment on the Federal Deposit Insurance Corporation's

proposed rule making regarding deposit insurance assessments, published

in the Federal Register on October 16, 2008. In part, the rule proposes

to impose higher risk based premiums for federally insured depositories

that have secured liabilities, including advances from the Federal Home

Loan Bank, in excess of 15% of domestic deposits. I appreciate the need

to restore the Deposit Insurance Fund. I'm concerned that the proposal

regarding Federal Home Loan Bank advances would increase the cost of

funding unnecessarily for financial institutions especially those

utilizing longer term advances to mitigate interest rate risk on longer

term assets. Federal Home Loan Bank advances are a critical source of

funding and liquidity for small institutions such as mine and have been

used safely and effective for over 75 years.

Due to the reliability and easy accessibility, FHLB advances are

especially important to smaller community banks that often lack an

alternative source of cost effective funding. These institutions, which

comprise the bulk of FHLB systems 8,100 members, depend on advances to

fill funding gaps between their core deposits and their loan demand and

to manage interest rate risk since long term core deposits continue to

be a scarce, if not an unavailable, commodity. The advances allow us to

ensure that credit remains available to worthy borrowers on competitive

terms, a vital role in the economic well being of the communities we serve.

In times of economic crisis they also provide liquidity to facilitate

lending and to manage interest rate risk. When prudently used, FHLB

advances help protect the insurance fund by providing access to

alternative funding and can also reduce interest rate risk.

Imposing an additional premium for advance usage will penalize financial

institutions that use them for prudent purposes. It, therefore, could

encourage them to either decrease lending or seek out less desirable

sources of funding. Either way, funding cost increase or are not as

available for lending.

In addition, if there is a decline in the demand for FHLB advances and

income is reduced in the FHLB system, less money will be available for

affordable housing programs they are required to support. Last year 318

million dollars were contributed by FHLBs for these programs.

I, therefore, urge the FDIC to revise the proposed rule to exclude FHLB

advances from the deposit insurance assessment base. Advance

availability is already limited by the FHLBs to 20 times an

institution's stock holdings. The FHLB system was created by congress

to provide low cost, reliable funding for financial institutions.

Member institutions should not be penalized for using this source of

funding and liquidity as congress intended.

None the less, if FDIC decides to retain an additional premium for FHLB

advances in the proposed rule, consideration should be given for

increasing the 15% threshold and to entirely excluding longer term

advances which assist institutions in managing interest rate risk. In

addition, some type of phase-out of the 50% limit on the secured

liability adjustment should be considered. It would seem institutions

utilizing primarily wholesale funding, as opposed to institutions who

use it modestly, likely do pose more of a risk to the insurance fund

which is not completely incorporated in the assessment on insured deposits.

Marion County Savings Bank

Larry H. Clark

President

Debbie Halfacre

Marion County Savings Bank

301 W. Main St

Salem, IL 62881