FDIC Liquidity Management. Tony Olbrich Regional President U.S. Bank

Size: px

Start display at page:

Download "FDIC Liquidity Management. Tony Olbrich Regional President U.S. Bank"

Cory Dawson
8 years ago
Views:

1 FDIC Liquidity Management Tony Olbrich Regional President U.S. Bank 0

2 Commercial Banks Checking and savings deposit accounts Consumer loans Business & Commercial Loans Payment Services Trust or fiduciary services International trade services Investment Banks Capital raising activities Securities insurance Mergers & Acquisitions Market making & trading Different Types of Banks Savings Banks Savings deposit accounts Residential real estate loans Credit Unions** Non-profit owned by its customers Retail & small business financial services ** Credit Unions are not technically banks 1

3 The U.S. Banking system is highly decentralized with each of the fifty states having the power to charter and regulate banks, separate from the federal charters issued by the U.S. Treasury. The common co-regulator of all banks, regardless of charter, is the Federal Deposit Insurance Corporation (FDIC). 2

Capital Standards, liquidity standards and leverage ratio standards Federal Deposit Insurance Corporation Insures deposits for $250M per depositor per bank Executive Department of the federal

4 Capital Standards, liquidity standards and leverage ratio standards Federal Deposit Insurance Corporation Insures deposits for $250M per depositor per bank Executive Department of the federal government Issues U.S. currency Issues U.S. debt Office of the Comptroller of the Currency (OCC) The States Fifty state banking agencies Independent regulatory rules and levels of supervision U.S. Central Bank Lender of Last Resort Controls U.S. monetary policy Oversight for Mortgages, credit cards and other consumer financial products and services Supervision & regulation 3

5 History of the FDIC On June 16, 1933, President Franklin Roosevelt signed the Banking Act of 1933, a part of which established the FDIC. The first Board of Directors of the Federal Deposit Insurance Corporation was sworn in at the Treasury Department, Washington, D.C., on September 11, On September 9, 1947, FDIC Chairman Maple Harl presented to Under Secretary of the Treasury A.L.M. Wiggins a check for $146 million, repaying more than half of the government's initial funding of the FDIC. The balance was repaid in

6 FDIC Historical Insurance Limits FDIC coverage limits per account holder since inception Year Coverage Level 1934 $2, $5, $10, $15, $20, $40, $100, $250,000 5

7 FDIC Historical Bank Closures There were 441 Bank closures from 2009 to It is estimated that 4,000 banks were closed in

8 FDIC Deposit Insurance Fund The FDIC receives no Congressional appropriations it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities* The FDIC insures approximately $9 trillion of deposits in U.S. banks and thrifts deposits in virtually every bank and thrift in the country* * Source: FDIC website 7

9 Recent Actions (Impacting FDIC) Due to Financial Crisis of Prepayment of FDIC Premiums - In November 2009, the FDIC required banks to prepay of 3 years of premiums - TLGP - In 2009, the FDIC created the Temporary Liquidity Guarantee Program (TLGP) which provided full coverage of noninterest bearing deposit transaction accounts. Also, all deposit insurance limit was temporarily raised from $100,000 to $250,000 - Extension of unlimited coverage - Beginning 12/31/10 through 12/31/12 (due to Dodd-Frank), all noninterest-bearing transaction accounts were fully insured. In addition, the $250,000 coverage limit per account holder was made permanent 8

10 Recent Actions (Continued) - Strengthen the FDIC program - Dodd-Frank requires the Deposit Insurance Fund Ratio (reserves / insured deposits) to hit 1.35% by 9/30/20 9

11 Details Behind Transaction Account Guarantee Program Approximately $1.5 trillion of corporate and municipal deposits were covered by the Transaction Account Guarantee program Banks have seen large growth of non-interest bearing deposits Upon expiration, depositors are forced to choose between moving their cash elsewhere or accepting unsecured bank credit risk. 10

12 Post Transaction Account Guarantee Program Deposit customers that no longer benefit from FDIC on non-interest bearing balances may want or expect to earn some sort of return Interest on checking / Repeal of Regulation Q - Regulation Q (which prohibited banks from paying interest on a checking account was repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act effective July 21, 2011 Move excess balances into alternative deposits options such as a money market savings, CD s etc. 11

13 Post Transaction Account Guarantee Program (Continued) Some may move excess deposit balances to off the banks balance sheet Money Market Funds Note: Possible reform is being consider Should Money Market Funds have a floating NAV? (Some reformers are pushing for this to happen) Short term government instruments Commercial Paper Sweep services Depending on state regulations, government deposits that are no longer covered by unlimited FDIC may require collateral 12

14 Post Transaction Account Guarantee Program (Continued) Look for products that allow greater FDIC coverage (CDARS, Insured Cash Sweep) - CDARS - Certificate of Deposit Account Registry Service Access FDIC insurance on multi-million-dollar CD deposits CD deposits are distributed through-out a network of banks providing unlimited FDIC as no one bank holds more than $250,000 - Insured Cash Sweep Access to unlimited FDIC insurance on open-ended deposits Distributed among many banks keeping to total on deposit under $250,000 at anyone one institution. 13

15 Early Trends Post Transaction Account Guarantee Program There have been a few reports of deposits moving out of banks however it s still too early to draw conclusions Net withdrawals at the 25 largest U.S. lenders totaled $114.1 billion in the week ended Jan. 9, pushing deposits down to $5.37 trillion, according to Federal Reserve data released last week * Some suggest that customers will diversify into multiple banks or move funds out of what some perceive as weaker banks Banks will need to provide customers with tools and options to manage their liquidity needs - Dedicated money managers - On-line investment portals allowing for easy movement of cash - New Products options Alternatives still limited in the current rate environment *Source: U.S. Bank Deposits Drop Most Since 9/11 Terror Attacks By Dakin Campbell - Jan 23,

Information as of 10/19/08. FDIC Temporary Liquidity Guarantee Program What is It and What Does It Mean to Community Banks?

Information as of 10/19/08. FDIC Temporary Liquidity Guarantee Program What is It and What Does It Mean to Community Banks? Information as of 10/19/08 FDIC Temporary Liquidity Guarantee Program What is It and What Does It Mean to Community Banks? Introduction The Liquidity Guarantee Program The FDIC has created a temporary