New FDIC guideline may further tighten business lending

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Measure will require banks to prepay three years’ worth of risk-based assessments at once.A proposed guideline by the federal agency that insures bank accounts could crimp lending at some institutions, warn industry experts.

The Federal Deposit Insurance Corp. wants to require insured institutions to prepay three years of their risk-based assessments, or about $45 billion, at once, according to an FDIC notice unveiled Tuesday. The public will have 30 days to submit comments before the agency takes any action, according to the notice.

Accelerated collection of the risk-based assessments, which normally are transferred to the FDIC on a quarterly basis, would “allow the industry to strengthen the cash position of the Deposit Insurance Fund,” according to the FDIC. The agency’s finances have been strained by a record number of bank failures across the United States.

But the move could also put pressure on banks, which will have to fund the prepayments.

“If these guidelines are enacted, it could reduce the liquidity available to some banks,” said John E. McWeeney Jr., co-chief executive officer of the Cranford-based New Jersey Bankers Association. “But it’s likely that the FDIC considered this and determined that banks, which have been seeing their deposits increase, will still have enough capital to maintain their level of lending.”

From a cash-flow perspective, the outlay would be less of a strain if the insurance fund were boosted over a longer period, said Robert C. Ahrens, CEO of Sewell-based GCF Bank. Despite that, well-capitalized institutions should be able to meet the proposed requirement without much pain, he said.

“It’s better than the alternative, which would have involved a special assessment to replenish the fund,” said Ahrens, who also serves as the chairman of the New Jersey Bankers Association. “At least this way, banks can capitalize the prepaid outlay and expense it on their profit-and-loss statement over a three-year period. If it was levied as a special assessment, we would have had to recognize the P&L hit immediately.”

Another FDIC proposal, released Sept. 25, does not appear to be so controversial.

The FDIC’s Correspondent Concentration Risks guidance, which also is open for public comment, would require banks to beef up the way they identify, monitor, manage and perform due diligence regarding correspondent institutions, or other banks that they loan money to or turn to for funds.

“On the surface, at least, this appears to be prudent precaution,” McWeeney said. “It encourages banks to review their overall strategy and risk management, and consider how well their correspondent bank is doing.”

Kevin Tylus, PNC Bank’s regional president of central New Jersey, agrees.

“The guidelines encourage banks to keep a sharp handle on the way they deploy lending capital, so they’re not over-concentrated in a single area,” said Tylus, who works out of offices in East Brunswick and Hamilton. “So some banks may end up pulling back from certain lending areas, while others may strengthen their presence. We believe it’s always a good idea to maintain a diverse portfolio.”

E-mail Martin C. Daks at [email protected]