Dedicated to Deposits: Deals, Data, and Discussion

Did ebank cut rates to comply with the FDIC's rate caps?

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As I was updating my list of rates today, I noticed ebank slashed many of its rates. This had me wondering if the FDIC's new Weekly National Rates and Rate Caps may have already had an effect. As the FDIC stated, the new rate restrictions don't take effect until 2010. However, there is pressure on less than well capitalized banks to start complying. As the FDIC stated:
The rule is effective January 1, 2010. Effective immediately, the FDIC will regularly publish national rates and caps, and permit institutions that are less than well capitalized to avail themselves of these rates as a safe harbor for complying with the statutory interest rate restrictions.

Ebank is a long-time internet bank that has a history of competitive rates, but they don't have a history as a financially strong bank. They're listed in this TheStreet article as one of the remaining undercapitalized Georgia banks and thrifts as of December 31, 2008. Plus, they have the lowest rating for safety and soundness at both BauerFinancial and Bankrate.com. We don't know if they're on the FDIC list of less than well capitalized banks since the FDIC keeps this list confidential. According to the FDIC, there are only 248 banks that are less than well capitalized as Q1 2009, out of more than 8,200 banks nationwide. So ebank may not be on the list, but there seems to be a reasonable chance that ebank is one of these 248 banks.

Here's how ebank's rates have recently changed along with how the new rates compare with the FDIC's rate caps. Note, the FDIC's rate cap is 75 basis points higher than the national average rate as measured by some third party. The following rates are from the FDIC's 6/01/09 rate table, ebank's rates page as of 6/06/09 and ebank's rates page as captured by Google on 5/16/09.

Account Type May APY New APY FDIC 6/1/09
Rate Cap

ePremium Chk $10K+ 2.00% 1.30% 0.89%
ePremier MM $100K+ 2.00% 1.75% 1.21%
eSavings 1.50% 1.00% 0.97%
3-month CD 1.45% 1.35% 1.42%
6-month CD 2.00% 1.50% 1.70%
12-month CD 2.40% 2.00% 2.00%
2-year CD 2.60% 2.10% 2.29%
3-year CD 3.00% 2.50% 2.53%
4-year CD 3.00% 2.50% 2.78%
5-year CD 3.00% 2.50% 2.94%

Ebank did cut its CD rates to below (or equal to) the FDIC rate caps. However, their liquid account rates weren't cut low enough. So it's possible that ebank didn't take the FDIC table in consideration for its new rates. It may be just an interesting coincidence.

The most important point I want to make is that this is an example of the problem with the FDIC rate restrictions. I can understand the FDIC wanting to prevent troubled banks from offering extremely high rates, but the FDIC needs to add a table for internet accounts. The low-cost structure of the internet allows banks to offer much higher deposit rates, and we don't want any of our internet banks to be forced to cut rates to unreasonable levels.

Other recent posts related to this issue:

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Comments
5 comments.
Comment #1 by Anonymous posted on
Anonymous
Fantastic analysis! Thank you for your great work.

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Comment #2 by Matt (anonymous) posted on
Matt
Can you explain why you say you can understand why the FDIC should prevent banks from attracting capital by offering competitive rates?

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Comment #3 by glxpass (anonymous) posted on
glxpass
It seems that ebank capped their rates in anticipation of the FDIC rate cap. Although the FDIC doesn't publish a list of banks showing their capital category, I adapted for ebank my FatWallet Finance post:

It appears that one can determine the FDIC capital category from on-line FDIC information.

mttatkins (a FatWallet Finance Forum poster) discovered the values of the different capital categories or groups here:

Capital Group Descriptions
"Well Capitalized." Total Risk-Based Capital Ratio equal to or greater than 10 percent, and Tier 1 Risk-Based Capital Ratio equal to or greater than 6 percent, and Tier 1 Leverage Capital Ratio equal to or greater than 5 percent.

"Adequately Capitalized." Not Well Capitalized and Total Risk-Based Capital Ratio equal to or greater than 8 percent, and Tier 1 Risk-Based Capital Ratio equal to or greater than 4 percent, and Tier 1 Leverage Capital Ratio equal to or greater than 4 percent.

"Undercapitalized." Neither Well Capitalized nor Adequately Capitalized.


Here's how to determine the capital category or group:

* Start with FDIC: Institution Directory
* Click on Find Institutions.
* Enter the Institution Name, e.g. ebank.
* Click on the Find button.
* Click on the Cert link in the Cert column of the applicable FI.
* ID Report Selections pull-down menu - select All Summary Information.
* Report Date should say March 31, 2009 or whatever the most recent quarter-end reported is.
* Click on Generate Report.

102 Core capital (leverage) ratio (This is Tier 1 Leverage Capital Ratio): 3.05%
103 Tier 1 risk-based capital ratio: 4.37%
104 Total risk-based capital ratio: 5.62%

Therefore, as of March 31, 2009, ebank is considered undercapitalized, according to the FDIC.

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Comment #4 by glxpass (anonymous) posted on
glxpass
BTW, the link in the above comment shows that Ally Bank is in the "well capitalized" FDIC capital category as of March 31, 2009.

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Comment #5 by Anonymous posted on
Anonymous
eBank is subject to a couple of relatively recent FDIC Cease & Desist Orders as per the following links:

http://files.ots.treas.gov/enforcement/97080.pdf

http://files.ots.treas.gov/enforcement/97079.pdf

Sometimes best to check on C&D Orders to get a feel for how bad off the Bank is and also what specifically is wrong at the Bank, like for example "undercapitalized, no brokered deposit renewals allowed, replace senior management, stop land loans," etc.

Some C&D Orders also direct Bank Management to raise $xx cpaital by a certain date or be subject to FDIC takeover.

Just a little more to look at before placing deposits at a particular bank. Of course, if you stay under the FDIC deposit insurance amount, no problem, except possible re-setting of interest rate if taken over or full deposit returned (if brokered, internet based deposit, etc.).

OC Steve

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