All Banking Law, All in One Place. Bloomberg Law: Banking is the comprehensive research solution that powers your practice with access to integrated banking-related legal news, analysis,...
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 .
To contact the reporter on this story: Jeff Bater in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Mike Ferullo in Washington at email@example.com
The rule is viewable at http://src.bna.com/dk1.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)