Federal Deposit
Insurance Corporation

From: Brad Butler
Sent: Friday, November 07, 2008 4:34 PM
To: Comments
Subject: RIN# 3064-AD35

Dear Sirs/Madams:

I am writing in regards to the proposed increase in deposit insurance premiums.  Given the current banking environment and in light of statutory edicts, the need to raise premiums is obvious.  My concern is the part of the proposed risk-based or risk-adjusted premium related to the use of brokered deposits. 

To Merchants and Manufacturers Bank, brokered deposits have represented a very useful tool over the last several years.  We are located in a growing market that has attracted new competition.  The increase in competition has led to a general increase in deposit pricing and a resulting decline in the spread that we can earn on our retail deposits.  The brokered market has been useful in two regards.  First of all, it has provided an alternative source of stable deposits at a rate that is, many times, cheaper than we can raise funds locally.  Second, we have been able to match fund some of our longer assets utilizing longer term, callable brokered CDs that are again at rates that we would be unable to sell locally.

My concern is that a healthy bank can effectively utilize brokered CDs to increase margins and manage interest rate risk.  The levels of “safe” use that are established in the proposed rule are too low for an otherwise sound bank, especially a bank like ours that is smaller than average.  We are $130 million in assets with $110 million +/- in deposits.  10% of deposits ($11.0 million) and 20% growth in 4 years ($20 million) by themselves are neither unsafe nor unsound levels for our institution.  Our use of brokered deposits is critical to maintain our Net Interest Margin and to manage our interest rate risk.  Any penalty applied for utilizing these funds at an otherwise sound financial institution serves to limit management’s ability to fund its balance sheet and to meet the credit needs of its community.

Please revisit the thresholds for otherwise strong financial institution’s use of brokered funds.

Regards, 

Brad W. Butler
Senior Vice President
Merchants and Manufacturers Bank
Channahon, IL.