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Banks' BOLI Assets Reach $104 Billion in 2006

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Banks and bank holding companies reported bank-owned life insurance assets of $103.9 billion in 2006, up almost 49% from $69.9 billion a year earlier, a new report says.

The large increase in reported BOLI assets was due largely to a Federal Reserve reporting requirement change, notes Michael White Associates LLC, Radnor, Pa., which compiled the report. Previously, the Fed mandated that banks report their BOLI assets only when they reached a level of 25% of “other assets” on their balance sheets. As of 2006, the Fed requires all BHCs and banks with assets over $500 million to report all their BOLI assets.

Without the additional BOLI amounts caused by the rule change, banks and BHCs would have actual BOLI growth of around $3.3 billion over 2005, reports Michael White, president of MWA. Actual BOLI assets would have been $67.4 billion, an annual growth rate of about 4.9%.

“So about 90% of the change was due to new reporters,” observes White.

The report covers data from 854 BHCs with consolidated assets of at least $500 million plus more than 7,800 commercial banks and FDIC savings banks.

As with corporate-owned life insurance, banks use BOLI to offset the cost of employee benefits such as health care insurance and retirement plans.

Among the study’s most significant findings are:

o Large BHCs, with at least $500 million in assets, increased their 2006 BOLI holdings by 56.4%, from $64.6 billion in 2005 to $101 billion in 2006.

o Stand-alone banks–i.e., those without BHCs–recorded an added $2.5 billion in BOLI. Another 70 BHCs with assets between $300 million and $500 million reported $400.2 million in BOLI assets. In combination, these additional sources brought the industry total to $103.9 billion.

o Of BHCs with assets over $500 million, more than 80% held BOLI assets in 2006.

o BHCs with over $10 billion in assets reported BOLI assets at 15.3% of capital, the highest percentage of any asset class.

The Fed holds that ordinarily it is not prudent for a BHC to hold BOLI assets with total cash surrender values more than 25% of its Tier 1 capital plus its allowance for loan-lease losses. Tier 1 capital consists mainly of equities and other kinds of investments deemed to be the most dependable and liquid.