FDIC Issues Final Rule on Small Bank Deposit Insurance

The FDIC today approved a final rule for assessing deposit insurance premiums on banks with under $10 billion in assets. Under the rule, assessment rates will be calculated using financial measures and supervisory ratings derived from a statistical model estimating the probability of failure over three years.

The final rule eliminates the risk categories currently used for banks that do not have a rating of CAMELS I or II, and instead bases assessment rates for all banks on a standardized formula. As a result, deterioration of a bank’s capital or supervisory rating will not lead to a jump in its assessment rate, only to a somewhat higher rate, ABA pointed out in a staff analysis. In addition, the rule adopts fairer standards 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 rule does not alter the loan portfolio factor — something ABA criticized previously — but does cap assessment rates based on CAMELS rating. This cap could limit the impact of the loan portfolio factor and the weighting for the tier 1 core capital ratio (which is given a much higher rating in the revised formula).

The FDIC estimates that 93 percent of small banks will see somewhat lower assessments as a result of the final rule, while the remaining 7 percent will see increases. The final rule will take effect beginning the quarter after the FDIC’s insurance fund reaches 1.15 percent, which is expected to occur in the third quarter. For more information, contact ABA’s Rob Strand.