The FDIC is exploring whether to “significantly” slim down its resolution planning requirements for large banks and make several adjustments to the Deposit Insurance Fund’s assessment framework, including reducing assessment rates, FDIC Chairman Travis Hill said today.
Speaking at an event in Washington, D.C., Hill shared several possible changes under consideration for how the agency resolves failed banks. While a majority of small bank failures handled by the FDIC have not proven problematic, the agency’s approach for how it handles large bank resolutions “needs to be fundamentally reexamined, reoriented and rationalized,” he said.
“I am skeptical of the value of requiring institutions to prepare lengthy narrative plans discussing proposed resolution strategies and hypothetical failure scenarios,” Hill said. “Instead, our focus should be on maximizing an optimal resolution outcome while being prepared in the event that option proves unavailable.”
One change under review is to significantly slim down the Insured Depository Institutions Rule to focus on key operational information most pertinent to the FDIC’s ability to execute an orderly resolution, he said. Another change would be to establish a new “resolution readiness adjustment” to the deposit insurance assessment framework for larger banks, which would allow any bank subject to the large bank scorecard to qualify for a downward adjustment to its quarterly assessment if it meets certain conditions.
DIF assessments
The FDIC is planning to propose at least three changes to the DIF’s assessment framework, Hill said. First, the agency plans to raise and index the threshold for banks subject to the large bank scorecard, which is currently set at $10 billion. Second, the agency plans to reduce assessments, recognizing that progress has been made in growing the fund.
“For banks subject to the small bank scorecard, we expect to reduce the assessment rate by a full two basis points,” Hill said.
Finally, the FDIC has been working on modernizing the large bank scorecard. However, Hill said any potential amendments to the scorecard would be proposed at a later date than the other changes
Other possible changes
Hill shared other changes currently under consideration or that have already been introduced. They are:
- For institutions subject to Part 370 IT and recordkeeping requirements, the FDIC is exploring replacing Part 370 with a modified version of the § 360.9 Large‐Bank Deposit Insurance Determination Modernization Rule. The modified rule would preserve certain streamlined requirements related to maintaining depositor records in a standardized format, while relieving banks of the requirements to build and maintain independent insurance determination systems, which have proven operationally burdensome, Hill said.
- The FDIC is considering revamping its Qualified Financial Contracts rule to require a narrower set of information that banks can realistically produce in a short period of time. The agency is also exploring whether it can leverage QFC transaction data that is already reported to various data repositories maintained by other agencies.
- The FDIC has been engaged with congressional offices on deposit insurance reforms, Hill said. “A smaller, more targeted reform that Congress could consider in the interim is providing a de minimis exception to the least cost requirement, which would enable the FDIC to choose a resolution option that is not the least costly option, if either on a dollar or percentage basis, the difference is very small.”
- Hill noted that the FDIC has taken several steps to lift the restrictions on nonbanks participating in failed bank purchases. The agency expects to open the pre-qualification process later this year to additional nonbanks that meet certain criteria. The intent is to enable the FDIC to sell assets more quickly and increase overall recoveries, he said.
