Little banks pay for bigger banks' blunders
Thousands of Home Valley Bank customers recently learned that their Presidential Guarantee accounts have become decidedly less presidential.
Instead of paying a promised 3 percent interest yield annually on the special checking accounts, the southern Oregon bank in mid-April unilaterally cut the rate to 2.02 percent.
Don't blame us, Home Valley executives said. Blame the FDIC.
In February, the federal agency that insures deposits approved a one-time special assessment that will increase the annual charge paid by many Northwest banks by three times or more. That leaves Home Valley and the other 8,300 banks across the country facing a significant new expense when many can't afford it.
As some U.S. banks are struggling to survive, they face significantly higher payments into the Federal Deposit Insurance Corp., which has been depleted by a wave of bank failures.
In a March letter to his customers at its five branches, Home Valley President Robert Ward said his FDIC assessment would jump from $119,000 in 2008 to more than $1.3 million in 2009, although it now appears the increase will not be as large.
The FDIC raised its assessments, not only because of the expense of recent bank failures, but also in recognition that more bad news is expected. The FDIC staff estimates that bank failures could cost the insurance fund about $65 billion from 2009 to 2013.
The 25 banks that imploded in 2008 cost the fund nearly $18 billion. Another 32, including three in the Portland metro area, have failed this year.
Moves such as Home Valley's could knock away the sense of security and trust that leads some customers from the larger institutions and into Oregon's smaller, community banks.
At least one Home Valley customer told The Oregonian that he pulled a certificate of deposit worth nearly $300,000 out of the bank and is looking to move much more out of his Presidential Guarantee account. About 10 customers have complained about the change, Chief Financial Officer Steve Haight said.
"Quite honestly, we've heard much more support for the bank," Haight said. "Of course, we face losing the trust. But every bank faces that risk with everything that is going on in banking right now."
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