FDIC Official Urges Broader Insurance Tax : Says Big Banks Should Pay on Foreign Deposits

A director of the Federal Deposit Insurance Corp. said Friday that five of the nation’s 10 largest banks have more than half of their deposits in foreign branches where they are exempt from insurance premium assessments.

Irvine H. Sprague said it is time for the big multinational banks to start paying federal deposit insurance on their foreign, as well as domestic, deposits to ensure that all banks are treated equally.

In a speech at Boston University, Sprague used Citibank and Bank of America as examples.

He said Bank of America paid almost $40 million in insurance assessments last year on $89 billion in total deposits--$59 billion domestic and $30 billion foreign.

Citibank, meanwhile, paid $18.5 million into the fund on total deposits of $79 billion--$30 billion domestic and $49 billion foreign.

“Both, in my opinion, enjoy de facto 100% insurance protection, but B of A, with less total book liabilities, paid more than twice as much in insurance assessments,” Sprague said. “Neither paid in proportion to the assessments on smaller banks which rely completely on domestic deposits.”

$226 Billion in U.S. Deposits

He said the law “makes some sense” in not requiring insurance premiums on foreign deposits because, “if the deposit is payable solely at a foreign office, it is not considered an insured deposit.”

“However,” he continued, “if these foreign deposits are liabilities of a very large insured U.S. bank that might not be allowed to fail, then, to the extent that institution has problems that require FDIC financial assistance, even these foreign deposits, although statutorily uninsured, are protected.”