FDIC Federal Register Citations

Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 Seventeenth Street, NW
Washington, DC 20429
Attention: Comments – RIN No. 3064-AD35

November 4, 2008

RE:       Federal Deposit Insurance Corporation Notice of Proposed Rulemaking and Request for Comment - Deposit Insurance Assessments; RIN No. 3064-AD35           

Gentlemen: 

The Federal Deposit Insurance Corporation (“FDIC”) has issued a notice of proposed rulemaking (the “Rule”) with respect to deposit insurance assessments.  This letter sets forth the comments of Port Richmond Savings with respect to the Rule.  We appreciate the opportunity to address this important issue.
 

The proposed rule, as drafted, effectively penalizes the use of FHLBank advances which could result in three possible undesirable outcomes for depository institutions:
 

• Operating costs may go up as a result of increased premiums;
• Institutions may increase focus on less stable retail deposits which will increase the cost of funds for all institutions operating in those markets; and/or
• Institutions may decrease lending in their communities, which is counter to efforts to get capital flowing in the economy.  Anything that weakens the economic environment will increase pressure on all depository institutions.

The FDIC should not assess a penalty on healthy institutions that prudently employ FHLBank advances.  Advances are a critical and stable source of liquidity and liquidity risk is the most significant challenge facing the banking industry at this time. 

If the FDIC proceeds with this new approach to risk-based premiums, FHLBank Advances that do not increase institution risk should be treated differently than other secured liabilities.

• Advances are more reliable, flexible and better priced than other sources of funding.
• As unique providers of secured funding, FHLBanks are cooperatives that serve their member/customers.  As such, advances are priced with very narrow spreads over the FHLBanks’ cost of funds. 
• The use of advances further strengthens depository institutions since most resulting net income to the FHLBank is paid to members in the form of dividends (for example, in the first nine months of 2007, 84% of FHLBank net income was paid out as dividends to members).

We at Port Richmond Savings have used low cost FHLB advances for years as they have become a critical part of our daily operating strategy. We have core capital of 15%, risk based capital of 27%, and our lowest delinquencies in years. We feel that our prudent  use of FHLB advances has not increased the risk to the FDIC fund and we should not be penalized for using them. Also, an unintended conseqence of targeting FHLB advances for higher FDIC premiums may be that we stop using this low cost source of loan funds and curtail our lending which is exactly what the country does not need at this time. 

Sincerely,
Sidney O. Smith, President
Port Richmond Savings