ICBA Policy Resolution: 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.
  • Because of ICBA’s advocacy efforts, banks with assets of less than $10 billion are not responsible for increasing the DIF reserve ratio from 1.15 percent to 1.35 percent. As a result, assessments for most of these banks through 2018 should either stay the same or decrease.
  • ICBA supports legislation that would ensure that reciprocal deposits are not considered brokered deposits under the Federal Deposit Insurance Act.
  • The FDIC should reconsider its method of calculating National Deposit Rate Caps so that they more accurately reflect actual deposit rates by community banks.

Background

Deposit insurance has been the stabilizing force of our nation’s banking system for 85 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 community bank assessments and helping community banks offset the advantage of the largest banks in attracting deposits.

Banks Over $10 Billion Will Pay the Costs of Raising the DIF Reserve Ratio

ICBA supported the FDIC’s final rule which surcharges 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, for the immediate future, 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.

FDIC National Rate Caps

ICBA urges the FDIC to reconsider their methodology for calculating National Rate Caps for deposits. While these caps apply mainly to banks that are considered less than “well-capitalized,” ICBA has heard of cases where the FDIC has warned well-capitalized banks not to pay interest rates on deposits that are higher than prevailing National Rate Caps. In calculating National Rate Caps, the FDIC should include credit union interest rates on deposits as well as premiums and promotional rates on deposits and rates paid on non-standard certificates of deposits. Furthermore, interest rates paid by large banks should not be overrepresented in the calculation. Unreasonably low caps that do not represent actual rates paid in the market disadvantage community banks seeking deposits to support lending.

Staff Contact: Chris Cole