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Financial Services Law Insights and Observations

FDIC raises deposit insurance assessment rates

Bank Regulatory Federal Issues Agency Rule-Making & Guidance FDIC CFPB Deposit Insurance

On October 18, the FDIC Board of Directors approved the adoption of a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023. (See also FDIC fact sheet here.) The FDIC said that after considering comments and updated analysis and projections, the increase in assessment rates was adopted without change from when it was proposed in June (covered by InfoBytes here). The FDIC emphasized that the increased assessment revenue is intended to increase the likelihood that the reserve ratio of the Deposit Insurance Fund (DIF) reaches the statutory minimum of 1.35 percent by the mandated deadline of September 30, 2028, while also reducing the likelihood that the FDIC would need to consider a potentially pro-cyclical assessment rate increase where it raises assessments when banking and economic conditions may be less favorable. This increase “is projected to have an insignificant effect on institutions’ capital levels, is estimated to reduce income slightly by annual average of 1.2 percent, and should not impact lending or credit availability in any meaningful way,” the FDIC said. Concurrently, the FDIC maintained the Designated Reserve Ratio for the DIF at two percent for 2023.

Acting Chairman Martin J. Gruenberg stressed that it “is better to take prudent but modest action earlier in the statutory 8-year period to reach the minimum reserve ratio, than to delay and potentially have to consider a pro-cyclical assessment increase.” CFPB Director and FDIC Board Member Rohit Chopra also chimed in, saying that while he voted in favor of finalizing the deposit insurance rate increase, there are a number of changes that must be made over the long term to deposit insurance assessment policies. These include (i) finding ways for banks that pose the most risk to the DIF “to pay more, relative to smaller institutions where the likelihood of large losses to the Fund are tiny”; (ii) building a framework to ensure assessment rate changes are countercyclical where premiums are adjusted “upward and downward based on economic conditions, recent industry profits, and other appropriate indicators”; and (iii) developing “a framework that relies less on ad-hoc adjustments and more on a systematized formula” based on specific quantitative factors.