FDIC Prepayment Scheme Is A Sham

The FDIC has suggested that it’s going to require that member banks pre-pay their annual fees through 2012 as a way to raise cash for a failed banking system.  Originally banks were opposed to this special assessment, which would have eaten into banks bottom lines and their ability to raise capital.  This proposal essentially creates an asset on the bank’s balance sheet, while at the same time draining it of cash and liquidity.  This is just another hidden mechanism of the FED to extract funds from the banking system.  It’s another card on top of the house of cards.  This prepayment shouldn’t be classified as an asset.  It’s not money that the bank will ever see again.  Instead, it’s cash out of the bank that will be written to $0.00 over the next three years.  Why wouldn’t the banks like it.  It reclassifies an expense into an asset, and last time I checked - the assets at the banks were all depreciating at a rapid pace.

“It’s certainly a better solution than taking a large chunk of money out of banks’ income and capital,” James Chessen, chief economist at the American Bankers Association, said after the meeting.

The prepayment approach gives “the FDIC the cash that they need, it will be paid for by the industry and it will not have the severe impact that other options would have had on banking,” Chessen said.

Banks paid a special assessment in the second quarter that raised $5.6 billion for the insurance fund. The agency also has authority to impose fees in the third and fourth quarters.

Banks backed prepayment because the premiums are classified as an asset when the payment is made, becoming an expense during the quarter in which the obligation is due.

The agency has authority to borrow against a Treasury line of credit that Congress in May increased to $100 billion. This option would have put the FDIC in the position of borrowing from taxpayers in the wake of public anger over the bank bailout.

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