Deposit insurance fund on track to reach reserve target in 2018 – two years ahead of deadline

The federal fund that insures savings in banks, thrifts and other financial institutions is on target to reach a reserve ratio of 1.35% by next year – more than two years well ahead of its statutory deadline, the chairman of the deposit insurer’s board said today.

Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corp. (FDIC) said the fund ratio at mid-year was 1.24% of total reserves to insured deposits – the highest since December 2005. The fund’s balance was $87.6 billion on June 30, up by nearly $10 billion from June 2016.

“The improvement in the Deposit Insurance Fund so far this year reflects the generally positive performance of the banking industry,” Gruenberg said in a statement he delivered at the FDIC Board’s meeting Wednesday. “Revenue and net income have grown, asset quality has improved, and the numbers of unprofitable and problem banks continue to decline.”

The agency has an overall goal of reaching a 1.35% reserve ratio by Sept. 30, 2020, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Large banks – those with $10 billion or more in assets – are paying surcharges to increase the ratio from 1.15% to the 1.35% statutory minimum; surcharges are set to cease after that.

“By meeting this target earlier than the mandate, we reduce the risk that the FDIC will have to raise rates unexpectedly in the event of a future period of stress, and help ensure stable and predictable assessments,” Gruenberg said.

He added that the FDIC is “taking a balanced approach in meeting its statutory requirement” for the minimum size of the insurance fund, and making steady progress in complying with that obligation.