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Kansas industry leader: Banks hit hard by FDIC premiums

April 21, 2009

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Earl McVicker assured a room full of Rotarians that community banks are safe, secure and largely free from the worries that have plagued onetime financial juggernauts such as Citibank, Goldman Sachs and AIG.

Not that the smaller banks are immune from the financial damage leveled during the ongoing economic downturn.

McVicker, who is chairman and president of Hutchinson-based Central Financial Corp., captivated about 120 members of Lawrence Noon Rotary on Monday with tales from the federal government’s up-and-down financial bailout and other issues brought on by the “instability and uncertainty” of a shaken economy.

Among his observations: Banks are watching their FDIC insurance premiums increase to levels 30 times higher than they had been just six weeks ago.

“Our premium went from $20,000 last year to a projected $220,000 when we budgeted for this calendar year,” said McVicker, whose Central Bank and Trust Co. has three locations in Hutchinson and two in Wichita. “And now, we’re probably looking at somewhere between $400,000 and $600,000 because of the new premiums as set by FDIC.

“And it is difficult to make that up — very difficult.”

McVicker watches such issues closely, not just because his company owns a community bank in Kansas but because it also has minority stakes in a dozen other community banks elsewhere.

McVicker also is an industry leader, having served as chairman of the American Bankers Association in 2006-07. He’s testified before Congress. He’s sat in the board room at the Federal Reserve in Washington, D.C., answering questions from Federal Reserve Chairman Ben Bernanke about whether he or anyone else in his organization was worried about the effects of subprime mortgages.

That was in spring 2007, of course, and McVicker and his fellow board members weren’t worried at all.

“We didn’t make ’em. We didn’t originate ’em. We didn’t sell ’em,” McVicker said, recalling the exchange. “But he was concerned.”

The bankers’ message that day, McVicker said: Let the system work.

But the fears discussed that day ultimately came to fruition, as companies such as AIG — which insured against losses on mortgage loans — ended up getting government bailouts, McVicker said.

While the government likely will get its money back and perhaps even get “some return” on such money sent to traditional banks, McVicker said, he can’t make such a prediction on the major financial companies that operated like banks only when it became convenient to gain government-backed security.

Now, as home values and commercial real estate have dropped, traditional community banks are left with less money on their balance sheets. And now that the rate of bank failures is rising, rates for FDIC insurance are climbing.

Last year, 25 banks failed — equal to the number so far this year, he said. Some predict a total of 100 U.S. bank failures by the end of this year, while others say there will be more.

The FDIC insurance premiums protect depositors from losing their accounts, in case of a bank failure. Now banks are paying more for their customers to receive protection.

Most banks will be able to absorb such costs, he said.

“But if you’re a bank that was struggling anyway, and you get hit with something like this, it can have a huge, huge impact,” McVicker said after the Rotary meeting. “I mean, there are banks around the state of Kansas that it’s probably going to affect their earnings by 50 percent, some of the banks that maybe are not doing quite as well. And we’re going to be paying those kind of premiums for at least the next five to maybe eight or 10 years.”

Comments

toe 4 years, 12 months ago

Their is better than there in some cases.

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toe 4 years, 12 months ago

I wonder if anyone would keep there money in a bank that did not have FDIC insurance. There is no law that says a bank must have the insurance. The insurance has allowed the moral hazard we have today. A depositor should always be careful where they put there money and a bank is only as safe as the integrity of the bank's management.

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Godot 4 years, 12 months ago

And this out, today:

"AP Exclusive: Fed tests harder on regional banks By DANIEL WAGNER, AP Business Writer Daniel Wagner, Ap Business Writer Tue Apr 21, 6:28 pm ET

WASHINGTON – The government is giving Wall Street banks a helping hand. But this time it's not a handout.

The federal bank "stress tests" rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press.

That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases the results of the tests next month."

http://news.yahoo.com/s/ap/20090421/ap_on_bi_ge/us_banks_stress_tests/print

Economics teacher: "What is Obama's motivation for destroying the smaller banks while rescuing the giant NY institutions?"

Bueller? Anyone?

Bueller: "um, maybe because the NY banks own Obama?"

Economics teacher: "Brilliant, Bueller, you just earned a day off!"

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ArumerZwarteHoop 4 years, 12 months ago

How is mandatory insurance any different than a tax?

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Steve Jacob 4 years, 12 months ago

Thank you Mr. McVicker. I have been waiting for someone to bring up that good small banks are going to pay the price because the big banks screwed up. I can't see any small banks surviving with 600K in FDIC insurance.

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ArumerZwarteHoop 4 years, 12 months ago

It’s about the elites helping their Ivy League buddies. Redistributing wealth from Kansas to help poor NYC. Now, that makes a lot of sense.

Not to mention the wealth be redistributed from the Midwest to the wealthy West Coast due to government meddling in the housing industry.

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Godot 4 years, 12 months ago

"Morgan Stanley might buy U.S. regional banks to build up its retail banking operations, Chief Executive John Mack told Japanese newspaper Nikkei in a recent interview.

"Now that we're a bank holding company, deposits are important to us," Mack told Nikkei. "We are looking for potential opportunities to buy a bank that has a presence in an important market in the United States."

Last autumn, as the financial crisis worsened, Morgan Stanley [MS 23.63 0.11 (+0.47%) ] and rival Goldman Sachs Group [GS 115.11 0.10 (+0.09%) ] received billions from the U.S. government under the Troubled Asset Relief Program and transformed themselves from investment banks to bank holding companies. They have sought to build up retail deposits. "

http://www.cnbc.com/id/30315210

Your tax dollars at work. Your local bank can't pay you any interest on your deposits because of the sweetheart deals the New York bankers are getting.

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Godot 4 years, 12 months ago

"Washington Post Staff Writer Tuesday, April 21, 2009

The Obama administration may let some large, troubled banks suspend interest payments on federal aid, allowing firms to rebuild their capital reserves more quickly and thereby limiting the amount of any additional federal aid that may be needed."

Pair that with this statement from the article above:

"Our premium went from $20,000 last year to a projected $220,000 when we budgeted for this calendar year,” said McVicker, whose Central Bank and Trust Co. has three locations in Hutchinson and two in Wichita. “And now, we’re probably looking at somewhere between $400,000 and $600,000 because of the new premiums as set by FDIC."

Sacrificing the healthy local banks to keep zombie, fraudster banksters going.

Write to your president and ask him how this helps the little people.

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