This blog post was co-authored by: Carl Aridas
In a recent blog post, Perficient’s Financial Services Risk and Regulatory Center of Excellence (CoE) highlighted the Federal Deposit Insurance Corporation (FDIC) plan to implement a “Robin Hood-like” deposit insurance premium on the nation’s largest banks to recapitalize the agency’s Deposit Insurance Fund.
Since that blog was published, the FDIC has issued an update on its Restoration Plan for the Deposit Insurance Fund (DIF). The Federal Deposit Insurance Act (FDI Act) requires the FDIC Board to adopt a restoration plan when the DIF’s reserve ratio—the ratio of the fund balance relative to insured deposits—falls below 1.35 percent.
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In a focused review of the last few years, on September 15, 2020, the FDIC established the Restoration Plan to restore the DIF reserve ratio to at least 1.35 percent by the statutory deadline of September 30, 2028. This action became necessary due to extraordinary deposit growth during the first half of 2020, causing the DIF’s reserve ratio to dip below 1.35 percent. The Plan retained the assessment rate schedules in place at the time.
On June 21, 2022, based on projections indicating that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline, the FDIC Board amended the Restoration Plan. However, a year later, the FDIC projected that the DIF reserve is likely to reach 1.35 percent by September 30, 2028.
In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.
DIF Balances in 2023
However, despite the increase in insurance premiums, the failures of Silicon Value Bank and other banks led to a decline in the DIF balance. As of June 30, 2023, the DIF balance stood at $117B. Increased loss provisions, including those for the bank failures, combined with robust insured deposit growth, resulted in the reserve ratio from 1.25 percent as of December 31, 2022, to 1.10 percent as of June 30, 2023.
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Despite this decline, the FDIC projects that the reserve ratio is likely to reach the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. It’s important to note that these projections don’t assume interest rates will remain as high compared to 2023. This also doesn’t account for the concentration of deposits for some of the largest banks dissipated via restructuring, spin-offs, or competing with smaller banks’ interest rates.
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