Banks and their regulators, for all their seriousness and formality, sure do seem like a pair of petty, bickering siblings at times. The FDIC recently sent a letter to banks complaining to them about complaints it had received from consumers because banks have been blaming the FDIC for certain fees. Turns out, banks are essentially complaining about their insurance costs to their customers.
The Chicago Tribune reports that the FDIC’s letter urged banks to “stop describing the fees as ‘FDIC assessments,’ ‘FDIC insurance premiums’ or ‘FDIC insurance charges.’” In order to explain certain fees to consumers, banks have been passing blame to the FDIC, which charges banks insurance on their deposits, because, in the event of a bank failure, the deposits are insured by the FDIC.
According to the Tribune, regulators do not prohibit banks from passing compliance costs on to consumers, but they believe the practice of calling them “FDIC fees” is both misleading and inaccurate. The FDIC is not charging consumers a fee, after all.
This isn’t a phenomenon limited to community bankers with a chip on their shoulder either, it goes all the way up the ladder: Bank of America and Regions both blame the FDIC for certain fees in their literature. From the Tribune:
According to information on its Web site about business deposit accounts in upstate New York, Bank of America “may charge” an “FDIC assessment based on the assessment rate the FDIC charges us.”
“The FDIC assessment may include deposit insurance charges,” the Bank of America literature said. “We generally calculate the FDIC assessment using the same calculation method used by the FDIC.” It said the rate is variable, may change without notice and is listed on the statement.
Insuring every American’s deposits is an expensive business. Every time a bank fails (there have been 32 this year already) the FDIC’s deposit insurance fund is tapped for millions of dollars, even at small banks. There is, however, a perverse logic to a bank like BofA complaining about FDIC insurance costs. They know that the government would never allow them to fail, so why should they pay for FDIC insurance when taxpayer dollars will do just as well?