FDIC Approves Plan to Restore DIF to Statutory Minimum Without Higher Assessments

FDIC Chairman Jelena McWilliams today signaled that an increase in the deposit insurance assessment rate schedule will likely not be necessary to restore the Deposit Insurance Fund to its statutorily required minimum reserve ratio of 1.35%. The reserve ratio was 1.3% as of June 30—down from a peak of 1.41% at the end of 2019—due in large part to extraordinary deposit growth during the first half of 2020 that was connected to the coronavirus pandemic and response.

The FDIC approved a plan that is expected to restore the DIF to at least 1.35% within eight years, as required by the Federal Deposit Insurance Act. Under the plan, the FDIC will maintain the current schedules of assessment rates for all banks; monitor deposit balance trends, potential losses and other factors that affect the reserve ratio; and provide updates to its loss and income projections at least twice a year.

“We project the reserve ratio would return to a level above 1.35% without any increase to the deposit insurance assessment rate schedule,” McWilliams said. “Of course, we are living in highly uncertain times, and these estimates are not predictions.” She added that the banking industry has been a “source of strength” throughout the pandemic and that “that FDIC will continue to support the ability of banks to meet customer needs while also taking actions to promote financial stability, including maintaining a strong DIF and reserve ratio.” Moreover, she added, “building the fund during good times [to allow]steady assessment rates is a critical aspect of responsible fund management,” she said.

American Bankers Association President and CEO Rob Nichols welcomed this move by the FDIC. “We commend the FDIC for its commitment to safety and soundness and its strong stewardship of the Deposit Insurance Fund, which protects customer deposits and is at its highest level on record,” Nichols said. “By maintaining the current assessment schedules, the FDIC recognizes that the recent unprecedented surge in deposits has been due to the extraordinary federal assistance in response to the global pandemic and customers seeking the safest place to keep their money. We agree with the FDIC that the decline in the fund’s reserve ratio is likely transitory and support its plan to continue to closely monitor the fund’s progress going forward.”

In separate action, the FDIC elected to disburse the residual assessment credits that banks under $10 billion accrued for their contributions to recapitalization of the DIF from 2016 to 2018. In total, $5.8 million will be paid out to 190 banks at the end of the month.

While the FDIC adopted a plan last year to pay out the remaining credit balances, it has the authority to withhold payments with the fund’s reserve ratio now below 1.35%. However, the FDIC board decided to proceed with remittances because “remaining assessment credits are immaterial relative to the DIF balance.”