FDIC Releases Revised Rule for Small Bank Deposit Insurance Assessments, Approves Extended Exam Cycles

Following a board meeting earlier today, the FDIC issued revisions to a proposed rule for assessing deposit insurance premiums on banks with under $10 billion in assets. The proposal incorporates several of ABA’s recommendations on the earlier proposal issued last July, including the elimination of an assessment penalty for funding with reciprocal deposits or Federal Home Loan Bank advances.

“We appreciate that the FDIC considered all of our issues with the earlier proposal and incorporated several of our suggestions. We are evaluating the latest version to see if it now fairly allocates assessments by risk,” said ABA senior economist Rob Strand.

In response to numerous comments from bankers across the country, the revised proposal would not factor core deposit funding into assessments (which would punish banks for funding with reciprocal deposits or Federal Home Loan Bank advances). Under the updated rule, funding with brokered deposits – not counting reciprocal deposits for well capitalized banks with CAMELS of 1 or 2 – in excess of 10 percent of assets would lead to higher assessments (and the existing “brokered deposit adjustment” would be eliminated).

As supported by ABA, the revised proposal would also adopt a fairer standard for assessing growth; assets would have to grow more than 10 percent over a one-year period to trigger higher assessments, meaning that fewer banks will be penalized for healthy, well-managed growth.

The new proposal would not alter the loan portfolio factor from the earlier proposal, which ABA criticized as being “of questionable value” in forecasting bank failures, since it does not account for the quality of credit underwriting, portfolio management and risk hedging. However, the proposal would cap assessment rates by CAMELS rating, which ABA supported, potentially limiting the impact of the loan portfolio factor and the weighting for the tier 1 core capital ratio, which ABA also objected to earlier.

The FDIC will accept comments on the proposal for 30 days following publication in the Federal Register, and posted a calculator for bankers to test the impact on their assessments.

The board also voted today to approve an interim final rule extending the on-site exam cycle for banks with up to $1 billion in assets from 12 months to 18 months, effective immediately. Previously, the 18-month exam cycle was only available to institutions with asset sizes less than $500 million.

This regulatory change — long advocated as part of ABA’s Agenda for America’s Hometown Banks — was included in the year-end highway bill as a result of strong advocacy efforts by ABA and the state associations. The measure will qualify an estimated 617 institutions for the extended exam cycle.

“The 18-month cycle will reduce the burden on well-managed community banks and thrifts,” said Comptroller of the Currency Thomas Curry. “It will also allow the federal banking agencies to focus our supervisory resources on those institutions that need it most.”