More than nine out of 10 small banks likely will pay less for deposit insurance beginning in the current quarter, the Federal Deposit Insurance Corporation recently announced.
The reduction in assessments will occur because the reserve ratio — the amount in the Deposit Insurance Fund to insured deposits — reached 1.17% at the end of June. That is the highest level for the fund in more than eight years, which fell into negative territory following the financial crisis of 2008, according to an FDIC news release.
“Assessment rates for 93% of institutions with less than $10 billion in assets are expected to decline,” FDIC Chairman Martin J. Gruenberg said in the release. “On average, regular quarterly assessments are expected to decline by about one-third for these smaller institutions. The improvement in the Deposit Insurance Fund since the financial crisis reflects progress in implementing the long-term fund management plan put into place by the FDIC in the post-crisis period, as well as improving conditions in the banking industry.”
The Deposit Insurance Fund is designed to protect the depositors of insured banks and to resolve failed banks. It is funded primarily through quarterly assessments on insured banks.
By FDIC regulations, the release said, three changes happen to assessment rates the quarter after the reserve ratio reaches 1.15%:
• The range of initial assessment rates for all institutions declines to between 3 cents and 30 cents per $100 of the assessment base from between 5 cents and 35 cents.
• Banks with $10 billion or more in assets will pay a surcharge, in addition to their regular quarterly assessments, to increase the reserve ratio to the statutory minimum of 1.35% by 2020, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Small banks will receive credits for the portion of their assessments that contribute to the increase to 1.35%.
• The method for determining risk-based assessment rates for established banks with less than $10 billion changes. The method change is designed to ensure that banks that take on greater risks pay more for deposit insurance than banks with less risk.
Even though large banks will pay surcharges, the FDIC estimates approximately one-third of large banks still will pay lower total assessments as the decline in regular assessment rates offsets the surcharges. The surcharges are temporary and are expected to last approximately eight quarters, according to the release.
Financial institutions can calculate an estimate of their assessment rates by clicking here to use the FDIC’s online calculator.
More information about the assessment changes is available at the https://www.fdic.gov/news/news/press/2016/pr16074.html.