Insurance Program

Means & Strategies:   When an institution fails, the FDIC facilitates the transfer of the institution’s insured deposits to an assuming institution or pays insured depositors directly.  The FDIC’s goal is to provide customers with access to their insured deposits within one to two business days.

The FDIC continually monitors changes in financial institution operations and products to ensure the FDIC’s ability to handle potential financial institution failures.  The FDIC develops, tests, and maintains contingency plans to ensure it is prepared to handle a wide range of potential failure scenarios, including the failure of a large financial institution; simultaneous, multiple failures; the failure of an institution with large international holdings; and the failure of an insured institution that operates primarily through the internet.

External Factors:   The goal of providing customers of failed institutions with access to their insured deposits within one to two business days is well established, but might be difficult to achieve in the case of an extremely large or complex institution or a sudden and unexpected failure.  However, even if it took somewhat longer to complete all deposit insurance determinations, no depositor would ultimately lose any portion of an insured deposit.

Means & Strategies:   The FDIC, in cooperation with the other primary federal regulators, proactively identifies and evaluates the risk and financial condition of individual IDIs.  It also identifies broader economic and financial risk factors that affect all insured institutions.  It accomplishes these objectives through a wide variety of activities, including the following:

• A risk-based deposit insurance assessment system, whereby institutions that pose greater risk to the DIF pay higher premiums;
• A strong examination and enforcement program;
• Collection and publication of detailed banking data and statistics;
• A vigorous research program;
• An off-site monitoring system that analyzes and assesses changes in banking profiles, activities, and risk factors;
• A comprehensive ongoing analysis of the risks in financial institutions with more than $10 billion in assets through the Large Insured Depository Institution Program and Institution Monitoring Program for IDIs held by U.S. Global Systemically Important Banks;
• Thorough and timely review of deposit insurance applications and other applications from IDIs; and
• A comprehensive framework for continually assessing risks to the banking industry.

External Factors: In spite of the comprehensive efforts undertaken by the FDIC to identify and respond to potential risks to the DIF, natural disasters, public policy changes, and sudden economic or financial market crises could cause broad losses within the financial services industry and the DIF.  In addition, a fraud perpetrated on a financial institution could result in a sudden and unforeseen loss to the DIF.

Means & Strategies:   The FDIC’s continued status as an independent agency is crucial to its ability to objectively assess risks and set appropriate assessment rates.  The FDIC maintains the viability of the DIF by investing the fund, monitoring and responding to changes in the reserve ratio, collecting risk-based premiums, and evaluating the deposit insurance system in light of an evolving financial services industry.  It regularly analyzes the growth or shrinkage of estimated insured deposits, the current assessment base, loss expectations, interest income earned on the fund, and operating expenses.  This information is used to develop a schedule of risk-based assessment rates.

Banks generally have improved their asset quality, and capital and liquidity ratios. Although annual loan growth has slowed in recent quarters, all major loan categories continue to grow. Industry-wide profitability (as measured by return on assets) has been trending up, and the majority of banks report year-over-year growth in their quarterly net income. The number of problem institutions has fallen dramatically from the post-crisis high and is at its lowest level since 2008.

Recent trends in banking industry performance have been generally positive.  The DIF balance has risen for the past eight years and stood at $90.5 billion on September 30, 2017, up from $83.2 billion at the end of 2016.  The reserve ratio stood at 1.28 percent at September 30, 2017, up from 1.20 percent at the end of 2016.

The FDIC Board of Directors is statutorily required to establish a Designated Reserve Ratio (DRR) for the DIF that is not less than 1.35 percent, and set assessment rates to meet that target no later than September 30, 2020. But it may also establish a higher DRR and has set the DRR at 2.0 percent for every year since 2011. The FDIC is operating under a DIF Restoration Plan that provides, among other things, that the reserve ratio will reach 1.35 percent by the statutory deadline. The Restoration Plan requires the FDIC to update DIF income and loss projections at least semiannually, which allows the Board of Directors to evaluate whether growth in the DIF under current assessment rates is likely to be sufficient to meet the statutory requirement. Because institutions with total assets of $10 billion or more are required by statute to bear the cost of increasing the reserve ratio from 1.15 percent to 1.35 percent, the FDIC Board of Directors imposed a temporary surcharge on these larger institutions that began in the third quarter of 2016 and will continue until the reserve ratio reaches 1.35 percent.

External Factors: Projections for the DIF are subject to considerable uncertainty arising from the economic outlook.  Key risks to the economic outlook include the effects of interest rate increases on economic growth and adverse global developments.   A slowdown in the U.S. economic recovery could result in more bank failures than projected and a decline in the value of failed bank assets.  In addition, future assessment revenue could diverge from staff projections depending on changes in bank risk profiles and in the projected growth in the industry assessment base.

Means & Strategies:  When an institution fails, the FDIC facilitates an orderly, least-cost resolution.⁴ Using an estimated value of the failing institution’s assets and liabilities, the FDIC markets the institution to potential bidders. After analyzing the bids received, the FDIC conducts a least-cost test determination and selects the least-cost strategy to pursue.

External Factors:  In accordance with law, if a failure threatens serious adverse systemic effects on economic conditions or financial stability, resolution strategies other than the least-cost resolution may be employed.

Means & Strategies:    To inform consumers and FDIC-insured institutions about federal deposit insurance coverage, the FDIC provides financial institutions with a variety of educational tools and materials designed to help customers understand their deposit insurance coverage.

In addition, the FDIC uses several other approaches to disseminate information on deposit insurance coverage, including the following:

• Operation of a toll-free call center⁵ staffed by specialists who respond to questions from depositors and bankers,
• Training and other educational opportunities to help bank employees better understand the FDIC’s deposit insurance rules,
• An array of web-based educational resources for consumers and bankers, and
• A wide range of publications and videos explaining how FDIC deposit insurance works.

External Factors:   A significant rise in the volume of bank failures, or publicity that raises public concerns about the possibility of significant bank failures, could result in bank runs by misinformed depositors or public avoidance of an insured depository institution.  Timely, accurate, and understandable information is essential to alleviating these risks.  An increased volume of bank failures and public concern about the possibility of additional failures could also result in substantial increases in the demand for information about FDIC insurance coverage that could temporarily exceed the FDIC’s capacity to provide such information.  In such cases, the FDIC would augment staff resources for this function as quickly as possible.