No changes to assessment rates as agency adopts restoration plan for diluted bank deposit insurance fund

Assessment rates will remain unchanged for institutions insured by the federal bank deposit insurance fund under a restoration plan adopted Tuesday for the agency’s insurance fund, which has been diluted by the massive influx of savings as a result of the financial impact of the coronavirus crisis.

The Federal Deposit Insurance Corp. (FDIC) Board adopted the restoration plan in a meeting Tuesday to restore its Deposit Insurance Fund’s (DIF) reserve ratio to at least 1.35% of reserves to total insured funds within eight years, as required under federal law.

The reason for the action, according to the agency, is that the reserve ratio for the fund has dropped to 1.3% (from a peak of 1.41% at the end of last year). The decline in the ratio, the agency said, was solely attributable to “extraordinary” growth in the base of insured savings.

“An unprecedented inflow of more than $1 trillion in estimated insured deposits in the first half of 2020 resulted mainly from the COVID-19 pandemic, specifically monetary policy actions, direct government assistance to consumers and businesses, and an overall reduction in spending,” the agency said in a release. “The DIF balance grew and did not experience material losses,” the agency added.

The restoration plan, however, does not call for any extraordinary measures – such as increasing assessment rates. Instead, the agency said, it will over the next eight years: monitor deposit balance trends, potential losses, and other factors that affect the reserve ratio; maintain the current schedule of assessment rates for insured banks and other institutions; and provide updates to its loss and income projections at least semiannually.

FDIC Board Chairman Jelena McWilliams warned in a statement, however, that the agency’s projections are merely estimates. “Of course, we are living in highly uncertain times, and these estimates are not predictions,” she said. “As a result, as part of the restoration plan, we will closely monitor economic conditions, the health of the banking sector, and deposit growth trends, and FDIC staff will provide updates to the Board of Directors not less than semiannually.”

Board Member (and former chairman) Martin J. Gruenberg, in a statement of his own, called the FDIC’s plan a balanced approach. “It underscores the uncertainty of the outlook, the need for the FDIC to monitor future developments closely, and the potential necessity for the Board to take action going forward to ensure the adequacy of the Deposit Insurance Fund,” he said.

FDIC FIL-90-2020: Restoration Plan for the FDIC Deposit Insurance Fund