US banks may seek relief from insurance fee surge

Mon Aug 8, 2011 5:06pm EDT

* Some banks seeing increase in deposits

* FDIC charges banks fee for deposit insurance fund

* BNY Mellon has sought to pass along costs to customers

By Dave Clarke

WASHINGTON, Aug 8 (Reuters) - U.S. banks might seek regulatory relief from costs associated with a flood of deposits, as investors seek safe places for their money, a top Washington banking official said on Monday.

Wayne Abernathy, a top official with the American Bankers Association, said it would be a concern for banks if the temporary surge in deposits due to market turmoil led to banks having to pay higher insurance fees on the short-term bloat.

"We've seen a little more than subtle shift of people out of money market funds and into deposits," he said.

More deposits mean banks have to pay more fees to the Federal Deposit Insurance Corp, which insures customer deposits up to $250,000.

The fees are assessed on a quarterly basis and are calculated using the banks' daily average deposit and asset levels.

Abernathy said that, if banks feel they will get hit by a big insurance bill, they would likely ask the FDIC to account for the unusual market conditions when determining the quarterly payment due.

He said banks could make the following case to the FDIC: "Don't you want to take this temporary bump ... into account when assessing us for deposit insurance, and not making us pay for this adjustment?"

An FDIC spokesman declined to speculate on what the agency might do if banks were to make such an appeal.

Last week, Bank of New York Mellon Corp (BK.N) said it was seeing a "transient" flood of deposits that could drive up its regulatory insurance costs. It said it would start charging a fee to big customers with unusually high balances to help absorb those costs. (Reporting by Dave Clarke; editing by Andre Grenon)