FDIC’s new restoration plan memo notes recent slowing in deposit growth but retention of deposits from previous growth spurts

Deposit growth rates may have slowed from the second quarter of 2021 on, but a staff analysis at the federal bank deposit insurance agency shows that insured deposits resulting from “extraordinary growth” in the first half of 2020 and first quarter of 2021 “do not appear to have receded,” according to a memo outlining a revised restoration plan for the bank deposit insurance fund.

The Federal Deposit Insurance Corp. (FDIC) Board on Thursday approved a revised restoration plan for the Deposit Insurance Fund (DIF) reserve ratio, which fell to 1.23% this March. The revised plan suggests it’s unlikely the fund could reach its 1.35% statutory minimum by Sept. 30, 2028, as had been projected in September 2020.

The revised plan recommends a uniform increase in initial base assessment rates of 2 basis points, which the agency says should increase the likelihood of the ratio arriving at that statutory minimum at the end of the fund’s eight-year restoration period.

The FDIC in September 2020 adopted a restoration plan for the deposit insurance fund ratio that left insured-bank assessment rates unchanged, finding at the time that the fund ratio was expected to return to its statutory minimum of 1.35% by Sept. 30, 2028.

However, the memo points to high deposit retention rates following pandemic-related growth spurts; unrealized losses on available-for-sale securities in the DIF’s own investment portfolio, driven by rising yields (amid market reaction to concerns about inflation and tightened monetary policy); and an industry weighted average assessment rate that “nearly matched the pre-pandemic average” and which has been “consistently below the level projected when the Board originally adopted the Plan.”

The agency estimated that excess insured deposits driven by the pandemic response totaled about $1.13 trillion as of September 2021 and have grown about $200 billion through March 31 of this year.

The restoration plan adopted by the FDIC Board in September 2020 had three basic parts:

  1. The FDIC will monitor deposit trends, potential losses, and other factors that affect the reserve
  2. The FDIC will maintain the current schedule of assessment rates for all insured depository institutions (IDls).
  3. At least semiannually, staff will update the Board on its analysis and projections for the fund balance and reserve ratio and, if necessary, recommend any modifications to the Plan, such as increasing assessment rates.

The revised plan adopted Thursday, and effective immediately, provides the following:

  1. The Amended Restoration Plan will reflect a uniform increase in initial base deposit insurance assessment rates of 2 basis points for allinsured depository institutions (IDis).
  2. The FDIC will propose a rulemaking to increase initial base deposit insurance assessment rates uniformly by 2 basis points, effective the first quarterly assessment period of 2023, and publish the notice of proposed rulemaking in the Federal Register as soon as possible.
  3. The FDIC projects that the rates proposed in the notice of proposed rulemaking would increase the likelihood that the reserve ratio would be restored to 1.35% by Sept. 30, 2028.
  4. The FDIC will continue to monitor deposit trends, potential losses, and other factors that affect the reserve ratio.
  5. At least semiannually, staff will update the Board on analysis and projections for the fund balance and reserve ratio and, if necessary, recommend any modifications to the Amended Restoration Plan.

Amended restoration plan fact sheet

Restoration plan update and amended plan

Amended plan notice for Federal Register

Proposed rulemaking, notice for Federal Register

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