As insurer of bank and savings association deposits, the FDIC must continually evaluate and effectively manage how changes in the economy, financial markets, and banking system affect the adequacy and the viability of the Deposit Insurance Fund (DIF).
Long-Term Comprehensive Fund Management Plan
In 2010 and 2011, the FDIC developed a comprehensive, long-term DIF management plan designed to reduce the effects of cyclicality and achieve moderate, steady assessment rates throughout economic and credit cycles, while also maintaining a positive fund balance, even during a banking crisis. That plan complements the DIF Restoration Plan, originally adopted in 2008 and subsequently revised, which was designed to ensure that the reserve ratio (the ratio of the fund balance to estimated insured deposits) would reach 1.35 percent by September 30, 2020, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
Under the long-term DIF management plan, to increase the probability that the fund reserve ratio would reach a level sufficient to withstand a future crisis, the FDIC Board set the Designated Reserve Ratio (DRR) of the DIF at 2.0 percent. The FDIC views the 2.0 percent DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises. In December 2018, the Board voted to maintain the 2.0 percent ratio for 2019.
Additionally, as part of the long-term DIF management plan, the FDIC has suspended dividends indefinitely when the fund reserve ratio exceeds 1.5 percent. In lieu of dividends, the plan prescribes progressively lower assessment rates that will become effective when the reserve ratio exceeds 2.0 percent and 2.5 percent.
State of the Deposit Insurance Fund
There were no bank failures in 2018. The fund balance continued to grow through 2018, as it has every quarter after the end of 2009. Assessment revenue was the primary contributor to the increase in the fund balance in 2018. The fund reserve ratio rose to 1.36 percent at September 30, 2018, from 1.27 percent a year earlier.
Minimum Reserve Ratio
Section 334 of the Dodd-Frank Act, which increased the minimum reserve ratio of the DIF from 1.15 percent to 1.35 percent, mandates that the reserve ratio reach that level by September 30, 2020.
To achieve this ratio, the FDIC imposed surcharges on the quarterly assessments of insured depository institutions (IDIs) with total consolidated assets of $10 billion or more (large banks). The surcharge equaled an annual rate of 4.5 basis points applied to an institution’s regular quarterly deposit insurance assessment base after subtracting $10 billion, with additional adjustments for banks with affiliated IDIs.
As of September 30, 2018, the reserve ratio exceeded the required minimum of 1.35 percent, and the surcharges were suspended.
Because the Dodd-Frank Act mandates that the FDIC offset the effect of the increase in the reserve ratio on small banks (i.e., banks with assets less than $10 billion), these banks were exempt from the surcharges. Furthermore, assessment credits are provided to small banks for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15 percent and 1.35 percent. The FDIC has calculated the aggregate amount of credits to be $765 million. Each quarter the reserve ratio is at least 1.38 percent, the FDIC will automatically apply a small bank’s credits to reduce its regular assessment up to the entire amount of the assessment.