BIF RESERVE RATIO FALLS TO 1.24 PERCENT
As a result of insured deposit growth, the reserve ratio of the Bank Insurance Fund has fallen to 1.24%, below the statutory minimum of 1.25%, FDIC Chairman Powell announced this week. The news significantly increases the odds that premiums will be assessed on BIF-insured deposits in 2003, but not on SAIF-insured deposits. The Savings Association Insurance Fund reserve ratio, at 1.36%, remains well above the 1.25% floor. Because the FDIC has already set premiums for the second half of 2002, the news will not change assessment rates for this year.
BIF-insured deposits grew $75 billion in the first quarter of 2002, causing a two basis point drop in the reserve ratio. Two-thirds of the increase was due to a change in the way banks calculate and report insured deposits on the Call Report. The reporting change, which took effect with the March 31 Call Report, requires banks to use data readily available in their general ledgers or other records to better estimate their insured deposits. Previously, banks used a formula for estimating insured deposits that did not adjust for pass-through accounts that are reported as single accounts (such as pension plan deposits) or for multiple accounts owned by a single depositor that aggregate more than $100,000.
Chairman Powell stressed that the current drop in the reserve ratio does not automatically mean an increase in premiums for 2003. The FDIC will not set premiums for the first half of 2003 until November. "Many things could happen between now and then to impact the reserve ratio," Powell said, citing deposit growth, reserves for expected losses, and additional bank failures as factors that impact the ratio. "At this time it is impossible to predict what will happen to any of these variables," Powell noted. But when the FDIC reviews the situation in November, "if the BIF is expected to remain below the statutory minimum of 1.25, then we have no choice under the current law: we will assess banks the amount necessary to get the fund back to the target," Powell stated.
The BIF reserve ratio has been steadily declining over the last three years from its high point of 1.41%. This is the first time in seven years that the ratio has been below 1.25%.
Passage of deposit insurance reform legislation would avoid the looming disparity between BIF and SAIF premiums. In addition, it would provide banks that have paid premiums in the past with assessment credits that would offset premiums for a number of years. Community bankers should continue to lobby their senators to pass a deposit insurance reform bill. Time is running short in this legislative year, and we need to capitalize on the decisive victory in the House, where deposit insurance reform passed overwhelmingly by a 408-18 vote.