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Title: Insurance is unlikely an issue for Mass. banks - The Boston Globe
Insurance is unlikely an issue for Mass. banks
Commonwealth's coverage system has ample reserves
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Massachusetts' state-chartered banks and credit unions are unlikely to face higher deposit insurance rates this fall, officials said, in a sign that local institutions are largely weathering the financial storms buffeting banks elsewhere.
Unusual insurance programs in Massachusetts provide extra coverage for deposits at state-chartered savings banks, cooperative banks, and credit unions. The system fully insures deposits over and above the better-known Federal Deposit Insurance Corp.'s coverage of $100,000 per depositor.
Insurance coverage is a hot topic: The failure of IndyMac Bank in California in July left depositors with about $600 million in uninsured holdings. With banks nationwide under pressure from bad real estate loans and the credit crunch, many expect the FDIC to raise the rates it charges member institutions.
But that's not the case for the Commonwealth's deposit insurance system because there are adequate reserves, said Massachusetts Commissioner of Banks Steven L. Antonakes.
The state system consists of the Depositors Insurance Fund for savings banks, the Share Insurance Fund for cooperative banks, and the Massachusetts Credit Union Share Insurance Corp. for credit unions. Together the funds cover about $14 billion worth of deposits above the FDIC's insurance, and member banks often tout the benefit.
Board members of the Depositors Insurance Fund, the largest of the three, say the 69 banks it covers are in good shape overall. One director, Richard M. Donovan, chief executive of Stoneham Savings Bank, noted 63 of the fund's 69 banks were profitable as of June 30. "The banks are pretty healthy," he said. Added another director, Wellesley College housing specialist Karl E. Case, "The DIF is in terrific shape."
One caveat, Case said, was if commercial loans some banks hold turn out to be backed by weak real estate assets. That's a question for both local and national banks. "I'm paid to worry, and my worry now is keeping an eye on commercial real estate," Case said.
Officials at the two smaller insurance programs also said they don't foresee charging banks higher premiums.
"We see no need for an increase," said Michael Hanson, head of the credit union insurance program. Said Peter A. Conrad, head of the bank that runs the fund for cooperative banks, "There's nothing at the moment that's cause for concern."
The FDIC reported last week that only 0.67 percent of loans by banks in Massachusetts were delinquent as of June 30, up from 0.57 percent as of March 31, but below the national average of 1.94 percent.
Even if the Massachusetts insurers were to increase the rates they charge banks, customers wouldn't likely feel the pinch because the assessments tend to be quite small.
For instance, the Depositors Insurance Fund's annual report for the year ended Oct. 31 shows it charged members $1.7 million to provide extra deposit coverage on $9.4 billion in deposits. It had $340 million in funds available then and roughly $350 million currently.
Ross Kerber can be reached at [EMAIL PROTECTED].
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