Just when the local economy could use a shot in the arm, banks large and small are being forced to divert money to shore up the Federal Deposit Insurance Corporation.
For institutions like Security First Bank, a one-branch community bank in Fresno, it means hundreds of thousands of dollars that now won't be available for small-business loans, car loans or mortgages -- the lifeblood of the local economy.
"Many of our loans are to small businesses," said Robert Hemsath, Security First's CEO. "And those are the ones who need credit now more than ever."
More banks have already failed in 2009 than in any year since the savings-and-loan crisis of the early 1990s. There are 106 so far, and more are expected.
The FDIC takes a hit for each closure -- sometimes in the millions of dollars -- because it insures deposits.
FDIC officials predict their Deposit Insurance Fund reserve -- which comes from premiums paid by banks -- will be in the red by the time the agency reports its third-quarter results.
Failed banks already have cost the insurance fund nearly $27 billion in 2009, with hundreds more at risk of collapsing by the end of 2010.
Bankers are facing two extra charges as a result:
Advance payment of deposit-insurance premiums. These usually are paid quarterly, but banks now must pay three years of assessments in advance, by the end of this year.
A special assessment, over and above regular quarterly premiums, was levied in May.
The prepaid assessments would bolster the FDIC reserve by about $45 billion -- enough, FDIC officials say, to cover expected bank failures into 2014.
"Let's say it's a million bucks for a bank our size," Rick Whitsell, CEO of Fresno First Bank, said of the prepayment. "That takes a million bucks out of our ability to invest and make loans here locally."
Each bank's regular FDIC assessment is confidential and is based on a combination of factors, including assets, deposits and risks.
Security First's Hemsath said his bank's regular FDIC assessments this year came to about $200,000. "That's a very large number to us, but it's not something we can't handle," he said.
If that figure holds steady, it means Hemsath's bank must pay the FDIC about $600,000 in a lump sum by Dec. 31 to cover the next three years.
In Security First's overall loan portfolio of some $76 million, $600,000 may not seem like much. But among its small-business loans, the majority are for less than $250,000, with some below $100,000, bank reports show. That means the advance assessment could potentially deny as many as a half-dozen borrowers.
An advisory committee of community bankers from across the country expressed similar concerns to FDIC Chairwoman Sheila Bair last month in Washington, D.C. By forcing banks to commit the cash up front, they said, their ability to extend credit is impaired.
For some, it could also be a hardship.
But George French, FDIC's deputy director for insurance and research, said the agency will evaluate each bank's assets and financial condition and grant exceptions if needed.
"Our intention, certainly, is not to put an undue strain on any bank's resources," French told the bank group. "At this point, we do think most banks' resources do hold adequate liquidity for this payment, but we're going to look at each case as it comes."
If a bank is healthy, prepaying one three-year lump sum rather than 12 quarterly assessments "will be more of an accounting issue than anything else" for bankers, Fresno First's Whitsell said. But not only will that money be unavailable for loans, banks also lose out on potential interest earnings.
The FDIC will not make public the names of any banks that receive exemptions from the assessments to avoid stigmatizing those institutions as less-than-healthy.
"If you're a struggling bank or have other liquidity problems, you probably have bigger issues anyway," Hemsath said of the exemptions.
The central San Joaquin Valley's only bank failure this year was Merced-based County Bank, shuttered in February by state banking regulators and put into FDIC receivership. Its operations were taken over by Westamerica Bank.
Federal officials estimated County Bank's failure cost the FDIC insurance fund about $135 million.
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