Tester bills aim to benefit rural community banks

Sen. Jon Tester, D-Mont., announced two pieces of legislation Friday, one that would make high-risk banks pay more for deposit insurance and another to extend a program that helps rural housing markets.

Tester will introduce an amendment to the Senate's banking reform plan that would require the Federal Deposit Insurance Corp., which bank deposits up to $250,000, to implement risk-based assessments when determining the insurance premiums banks pay.

"Right now, community banks pay 30 percent of all FDIC premiums, but they only have 20 percent of the assets," Tester said.

Rising FDIC premiums as a result of the number of bank failures in recent years is a concern for community banks, said Mike Richter, president and CEO of State Bank of Townsend, and the Montana director for the Independent Community Bankers of America.

"Three years ago, community banks in Montana were not paying a lot of FDIC insurance," he said. "In December, we had to prepay three year's worth of premiums."

For the State Bank of Townsend, with deposits of $42 million, the bill was $190,000.

"That's a lot for us, and we'd already paid $70,000 in premiums during the same year," Richter said.

FDIC bases its premiums on domestic deposits — the assets of customers who live in the United States.

"Big, multinational banks have huge deposits from customers from all over the world, but their FDIC premiums are based on only the domestic deposits," Richter said. "After the fiasco of the last couple of years and the big bailout money, it's only fair to implement a risk-based assessment for insurance premiums, based on the type of business practices a bank is doing."

"We need to make sure small, rural banks — that played by the rules and didn't cause this crisis — aren't paying for the risky behavior of big Wall Street banks," Tester said.

The second bill adjusts the terms of U.S. Department of Agriculture mortgages for homebuyers in rural areas to extend the funds available in the program.

The USDA currently provides guarantees to lenders who offer 30-year fixed-rate mortgages for 100 percent of the loan in rural communities. Approximately 700 Montana homebuyers have used the program so far this year; last year, 1,000 such loans were made in the state. The proposed restructured fees would increase the cost of a mortgage payment by about $10 a month for a homebuyer, but make the program self-sustaining and save $24 million in taxpayer funds.

The guarantee fee, which can be rolled into the mortgage loan, currently is 2 percent. The new fee would be 4.1 percent.

"One of the toughest parts of my job is to make folks in Washington understand the unique challenges in rural America," Tester said. "This is a common-sense plan to ensure affordable home loans in rural communities for the long run, without breaking the bank."

The proposed increase in the fee could mean some people will have to come up with money for closing costs, said Maureen Rude, operations director for NeighborWorks Montana, which works to promote homeownership throughout the state.

"But if it continues to make the program available to rural homebuyers, I think it will be a good thing," Rude said.

Richter agreed.

"These are good tools in smaller communities," he said. "Even with the downturn in housing, homes are not as cheap as they were 10 years ago, and this helps get young borrowers into a home."