Deposit Insurance

Position

  • Our nation’s federal deposit insurance system is critical to depositor confidence in the banking system, to the protection of small depositors and to the funding base of community banks. A strong Deposit Insurance Fund (DIF) is important to maintaining public confidence that the FDIC has adequate resources to protect the nation’s depositors.
  • ICBA strongly supported the changes to the deposit insurance assessment base as a result of the Dodd-Frank Act which are saving the community banking industry billions of dollars.
  • ICBA still has concerns about the recent FDIC final rule that changes the pricing methodology used to determine assessment rates for banks with less than $10 billion in assets.
  • Because of ICBA’s advocacy efforts, banks with assets of less than $10 billion will not be responsible for increasing the DIF reserve ratio from 1.15 percent to 1.35 percent. As a result, assessments for most of these banks over the next two years should either stay the same or decrease.
  • ICBA supports legislation that would ensure that reciprocal deposits are not considered brokered deposits under the Federal Deposits Insurance Act.

Background

Deposit insurance has been the stabilizing force of our nation’s banking system for 80 years. It promotes public confidence by providing safe and secure depositories for small businesses and individuals alike.

Deposit Insurance Victories. ICBA achieved several significant and long-sought deposit insurance victories in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law permanently increased deposit insurance coverage to $250,000 per depositor. The Dodd-Frank Act also provides for indemnification of banks under $10 billion in assets from any recapitalization costs associated with raising the DIF reserve ratio from 1.15 to 1.35 percent and a redefinition of the assessment base as average total consolidated assets minus average tangible equity. These changes helped create parity in the deposit insurance system by reducing assessments for banks with assets of less than $10 billion and helping these banks offset the advantage of the largest banks in attracting deposits.

New Pricing Methodology for Banks Under $10 Billion. Despite some improvements to the proposal, ICBA still has concerns about the FDIC’s final rule concerning the pricing methodology used to determine assessment rates for banks with assets less than $10 billion. ICBA made specific comments about the loan mix index and the ratio of core deposits to total assets and expressed general concerns about whether the proposal picks winners and losers in the financial services industry based on historical data that will invariably change over time. In January 2016, the FDIC favorably amended the proposal in two respects. First, the new proposal repeals the core deposit ratio, which had been included in the prior proposal and which would have penalized reciprocal deposits. The January proposal replaces the core deposit ratio with a brokered deposit ratio. Highly-rated banks will be allowed to exclude reciprocal deposits from the brokered deposit ratio. In addition, brokered deposits would only increase a bank’s assessment rate when they exceed 10 percent of total assets. Second, under the revised proposal, the new one-year asset growth measure will not trigger higher assessments if a bank’s asset growth does not exceed 10 percent over a one-year period. However, we still have concerns about the loan mix index in the final rule and its potential adverse impact on construction and C&I lending.

Banks Over $10 Billion Will Pay the Costs of Raising the DIF Reserve Ratio. ICBA generally supports the FDIC’s final rule which will surcharge banks with assets over $10 billion to pay for raising the DIF reserve ratio from 1.15 percent to 1.35 percent, as required by the Dodd-Frank Act. As a result, assessments for most banks under $10 billion will stay the same or go down. In addition, these banks will receive credits for premium payments made during the estimated two-year period that it will take the DIF to grow from a 1.15 percent to a 1.35 percent reserve ratio. The credits may be used to offset assessments once the DIF reserve ratio has reached 1.38 percent.

Reciprocal Deposits. ICBA supports legislation that would ensure that reciprocal deposits of an insured depository institution are not considered to be funds obtained by or through a deposit broker under the Federal Deposit Insurance Act. This legislation would allow reciprocal deposits to serve as a stable source of funding for community banks. Because reciprocal deposits have been wrongly classified as brokered deposits, it has been difficult for community banks to utilize them to their full potential. This legislation would support local depositors while ensuring stable funding for community lending.

Staff Contact: Chris Cole