Big Banks Would Lose Tax Break for Deposit Insurance Premiums

By Chris Bruce

Banks with more than $50 billion in consolidated assets would no longer be able to deduct their federal deposit insurance premiums under a House Republican tax bill introduced Nov. 2.

Current law allows insured depository institutions to deduct premiums assessed by the Federal Deposit Insurance Corp. as ordinary business expenses. Section 3309 of the bill would create a new formula to limit deductions for deposit insurance paid by institutions with more than $10 billion.

Application of the formula would eliminate entirely the deduction for institutions with more than $50 billion, according to a House Ways and Means Committee summary of the bill. Meanwhile, institutions with less than $50 billion in assets would lose the deduction for a percentage of their assessments, while institutions with $10 billion or less in assets aren’t affected.

The American Bankers Association said it will try to keep federal tax deductions for insurance premiums that banks pay to the FDIC. The ABA said the House bill, while helpful in some respects, doesn’t address billions of dollars in “outdated, unfair and unreasonable tax advantages” enjoyed by credit unions and the Farm Credit System. “We will continue to make the case that businesses offering similar services should be treated equally under the tax code,” ABA President and Chief Executive Rob Nichols said in a Nov. 2 statement.

According to the bill summary, the FDIC determines deposit insurance assessments on a pre-tax basis and doesn’t account for deductions. Section 3309 corrects for the FDIC’s treatment, boosting tax revenues by $13.7 billion over 10 years, according to the summary. “This is a back door way to tax the banks,” Cowen financial institutions analyst Jaret Seiberg said in a Nov. 2 memo on the bill.

Kenneth H. Thomas, an independent bank consultant and economist, was critical of the proposed cut in the deduction in an interview with Bloomberg Law. “The bigger banks put more into the fund, and we want to encourage that,” said Thomas, who was a lecturer in finance at the University of Pennsylvania’s Wharton School for 42 years. “Losing the deduction is going to hurt them and they will pass that on to customers in the form of higher rates for loans, lower rates on deposits, and higher fees for products and services.”

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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