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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
Debbie Halfacre

Marion County Savings Bank
301 W. Main St
Salem, IL 62881


Last Updated 11/12/2008

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