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Mr. Robert Feldman
November 4, 2008
Re: RIN No. 3064-AD35 Notice of Proposed Rulemaking Deposit Insurance Assessments
To Whom It May Concern:
I understand that the FDIC needs to increase premiums to re-capitalize the bank insurance fund, and I agree that making the premiums risk based makes for good policy. However, I think it is wrong to penalize those that have secured liabilities, including advances from the Federal Home Loan Banks, in excess of 15 percent of domestic deposits. FHLB advances have been, and continue to be, an important liquidity and risk management tool for community banks, especially those in rural areas where deposit growth has not always kept up with the growth of loan demand. This proposal would penalize many FHLB members and discourage the prudent use of advances as a reliable source of funding to supplement core deposits. Also, this proposal threatens to constrict a critical source of liquidity at a time when Congress, the Treasury Department, and the Federal Reserve Board are trying to increase liquidity and encourage lending in order to bolster confidence in the banking system. Key members of Congress have been saying how they want banks to use money from TARP to make loans rather than pay dividends, fund bonuses, or buy up other banks. Your proposal will have the opposite effect of forcing banks to curtail their lending so they can pay down their FHLB advances.
Our bank has used FHLB advances to match specific loans to specific customers and help them lock in longer rates or specific terms on their loans while helping the bank balance interest rate risk. If we had known FHLB advances would be re-characterized by the FDIC and would lead to higher assessments, then we would not have made those loans. If this proposal passes in its present form, banks such as ours will not make new loans funded by FHLB advances. Furthermore, they will make fewer loans in general so that they can instead pay down their existing FHLB advances in order to cut their FDIC assessments. This will lead to less lending and less economic activity, exactly the opposite of what the government was hoping to achieve. It seems that this part of the proposal should be taken out, or banks should be given some sort of 3-5 year transitional period to adjust their use of FHLB advances before they are penalized for them with higher FDIC assessment rates.
Very truly yours
John R. Huiskamp
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