A “designated reserve ratio” (DRR) of 2% for the fund that insures the deposits in the nation’s banks and savings institutions has been approved for 2018, according to filings with the Federal Register.
The board of the Federal Deposit Insurance Corp. (FDIC) made the reserve ratio decision in September, but the designation wasn’t scheduled for publication until this week (most likely Friday).
The rate is unchanged from 2017; it represents the level for the fund to reach (in terms of reserves to savings insured) as part of its long-term management plan.
The Federal Deposit Insurance Act (FDIA) requires the board to set the rate annually. In 2010, the board adopted a final rule that set out the analysis on which the DRR is based. The factors of the analysis include: Risk of losses to the DIF; economic conditions generally affecting insured depository institutions; preventing sharp swings in assessment rates; and any other factors that the FDIC may determine to be appropriate and consistent with these factors.
The goal of the analysis, the 2010 final rule noted, is to recommend a reserve ratio needed to “withstand a future banking crisis.”
“A 2% reserve ratio prior to past crises would barely have prevented the fund from becoming negative while maintaining steady assessment rates,” the 2010 final rule analysis states. “A larger fund would have allowed the FDIC to have maintained a positive balance and the fund would have remained positive even had losses been higher. Consequently, the FDIC views the 2% DRR as a long-range, minimum target.”
The final rule also noted that “a fund that is sufficiently large is a necessary precondition to maintaining a positive fund balance during a banking crisis and allowing for long-term, steady assessment rates.”