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To whom it may concern,
We are opposed to the calculations proposed for increased FDIC insurance premiums on financial institutions with brokered deposits. While some banks have apparently abused this funding source for risky lending, we have found this to be a viable alternative funding source, allowing us to providing needed loans in the communities we serve. The recent economic turmoil seems to only strengthen one of the positive characteristics this funding source demonstrates, the inability for the account to be withdrawn except in extreme circumstances.
Since brokered deposits are not eligible for early withdrawal, except in the case of death or court declared incompetence, we are virtually in total control of retaining these funds to their intended maturity date. This allows us to better manage our liquidity risk which has become one of factors, if not the most important factor, in surviving the current financial environment. This is not true for traditional retail deposits which normally have a penalty to discourage early withdrawal, but does not prevent the depositor from withdrawing the account prior to its contractual maturity date.
In addition, deposit insurance limitations continue to encourage depositors to spread their money among multiple banks. Individuals who need to spread their deposits among multiple banks to maximize their insurance coverage, can use a cost effective solution such as a brokerage account or directly contact multiple banks and individually open accounts. Using a broker to handle this does not imply higher risk or less stability than directly working with each bank which makes the deposit non-brokered.
This additional assessment would also produce a disadvantage to community banks that do not have the extensive branch networks that larger national institutions have to gather non-brokered deposits.
We are not aware of the discussions that determined the point where risk to the Insurance Fund arises is the 10% brokered deposit threshold and the 20% growth threshold, but these appear to be arbitrary thresholds and not representative of when risk actually arises. In our view, this 10% brokered deposit threshold and 20% growth threshold will become an artificial level at which a negative stigma will be placed up on banks by examiners and the public. This could also lead to the creation of an upper limit being placed on brokered deposits at some point in the future.
We appreciate the opportunity to express our views on this issue and encourage you to use this and other information to make a sound long-term decision on this issue versus a quick reaction to the abuses of a few within the industry.
Richard L. Wilson, CPA
|Last Updated 11/10/2008||Regs@fdic.gov|