By Jeff Bater
March 15 — A regulator that guarantees bank deposits finalized a rule to strengthen its insurance fund, with bigger lenders required to pay a surcharge.
The Federal Deposit Insurance Corporation (FDIC) rule calls for banks with at least $10 billion in assets to pay 4.5 cents per $100 of their assessment base to satisfy a Dodd-Frank Act requirement to bolster the agency's insurance fund. But the FDIC pointed out most banks will have substantially lower assessments—and even some lenders facing the surcharge are seen having a lower total assessment rate.
Dodd-Frank raised the minimum reserve ratio to 1.35 percent from 1.15 percent, with a deadline of Sept. 30, 2020. Banks above the $10 billion threshold are required to foot the increase. The FDIC expects the reserve ratio will likely reach 1.35 percent after about two years of payments of the surcharges.
The deposit insurance fund was depleted during the financial crisis amid an epidemic of bank failures, but has recovered over the last five years and totaled $72.6 billion at the end of 2015, with a reserve ratio of 1.11 percent.
The reserve ratio is equal to the fund's balance divided by estimated insured deposits. A higher minimum level of the ratio reduces the risk that losses from bank failures during an economic downturn will dry up the fund—and lowers the risk of large, pro-cyclical increases in deposit insurance assessments to maintain a positive fund balance.
The final rule approved at the agency's March 15 meeting will become effective July 1. If the reserve ratio reaches 1.15 percent before that date, surcharges will begin July 1. If the reserve ratio has not reached 1.15 percent by that date, surcharges will begin the first quarter after the reserve ratio reaches 1.15 percent.
Under a rule approved by the FDIC in 2011, regular assessment rates for all banks will decline when the reserve ratio reaches 1.15 percent, which the FDIC expects will occur in the first half of 2016. FDIC Chairman Martin J. Gruenberg said in a statement that a large majority of institutions will have substantially reduced assessments when the reserve ratio reaches 1.15 percent.
“Even many mid-sized institutions subject to surcharges are expected to pay a lower total assessment rate—including their surcharges—than currently,” he said. “The assessment surcharges on large institutions will be spread out over time and should be manageable for the institutions. By aiming to reach the minimum reserve ratio ahead of the statutory deadline, this approach reduces the risk that the FDIC will have to raise rates unexpectedly in the event of a future period of stress and should allow the FDIC to maintain stable and predictable assessments.”
The final rule largely reflects the proposed rule, with minor changes made .
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