1) The banks that prepay don’t have to show this expense on their books until the quarter in which the payment would have been due. I believe that means that the money will simultanously show as an asset on the books of the bank AND as an asset in the Deposit Insurance Fund. It’s an accounting version of the Miracle of the Loaves and Fishes. (My guess is the banks will be allowed to call it ‘encumbered cash’, or something).
[/quote]
This is basic accrual accounting. No funny business required. The bank’s balance sheet will reflect an asset called something like “Prepaid FDIC Insurance Fees.” This number will likely be capitalized quarterly over three years down to zero. Without getting into accounting language, on Day 1, Cash will decline, and Prepaid FDIC Insurance Fees will increase. So, the bank’s balance sheet balances.
Over at the FDIC, cash will increase and equity will increase. So, again, the balance sheet balances. Now, in reality, the FDIC will need to understand that “Future FDIC Fees Receivable” will decline by the amount collected up front, but that’s a theoretical adjustment. Also, recall that at the end of the day the FDIC can just keep collecting fees from the banks, even if it hampers their profitability for years to come. That’s the way it works.
While you’re right that there will be a double-counting of “assets” (in the generic sense) under this accounting, there will NOT be a double-counting of CASH. Cash leaves the bank and goes to the FDIC. The new asset for the bank – Prepaid FDIC Insurance Fees – is not cash.
Anyhow, there’s nothing particularly unusual about the accounting if this is the road they go down.
