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FDIC Quarterly Banking Profile

DEPOSIT INSURANCE FUND TRENDS
SECOND QUARTER 2016

Notes to Users

  • Insured Deposits Increase Only 0.2 Percent
  • DIF Reserve Ratio Rises 4 Basis Points to 1.17 Percent
  • Several Changes to Assessments Begin in the Third Quarter of 2016
  • Total assets of the 6,058 FDIC-insured institutions increased by 1.5 percent ($240.6 billion) during the second quarter of 2016. Total deposits increased by 0.8 percent ($98.6 billion), domestic office deposits increased by 0.9 percent ($94.8 billion), and foreign office deposits increased by 0.3 percent ($3.8 billion). Domestic interest-bearing deposits increased by 0.6 percent ($52.2 billion), while noninterest-bearing deposits increased by 1.4 percent ($42.5 billion). For the twelve months ending June 30, total domestic deposits grew by 5.8 percent ($614.8 billion), with interest-bearing deposits increasing by 7.5 percent ($572.8 billion) and noninterest-bearing deposits increasing by 1.4 percent ($42.0 billion).1 Other borrowed money increased by 6 percent, securities sold under agreements to repurchase declined by 15.5 percent, and foreign office deposits declined by 1.4 percent over the same twelve-month period.2

    Total estimated insured deposits increased slightly during the second quarter of 2016 (0.2 percent increase), compared to a 2.1 percent increase during the previous quarter.3 For institutions existing at the start and the end of the most recent quarter, insured deposits increased during the quarter at 2,871 institutions (47 percent), decreased at 3,167 institutions (52 percent), and remained unchanged at 29 institutions. Estimated insured deposits increased by 5.3 percent over the 12 months ending June 30, 2016.

    The Deposit Insurance Fund (DIF) increased by $2.8 billion during the second quarter of 2016 to $77.9 billion (unaudited). Assessment income of $2.3 billion and a negative provision for insurance losses of $627 million were the main drivers of the fund balance increase. Interest on investments of $164 million and unrealized gains on securities of $110 million also contributed to fund balance growth. Second quarter operating expenses of $441 million offset some of this growth. Two insured institutions, with assets of $122 million, failed during the second quarter. The DIF’s reserve ratio was 1.17 percent on June 30, up from 1.13 percent at March 31, 2016, and 1.07 percent four quarters ago.

    Effective April 1, 2011, the deposit insurance assessment base changed to average consolidated total assets minus average tangible equity.4 Table 1 shows the distribution of the assessment base as of June 30, by institution asset size category.

    Table 1
    Distribution of the Assessment Base for FDIC-Insured Institutions*
    by Asset Size
    Data as of June 30, 2016
    Asset Size Number of Institutions Percent of Total Institutions Assessment Base**
    ($ Billion)
    Percent of Base
    Less Than $1 Billion 5,327 87.9 $1,119.3 7.9
    $1 - $10 Billion 619 10.2 1,522.7 10.7
    $10 - $50 Billion 73 1.2 1,484.3 10.5
    $50 - $100 Billion 13 0.2 833.2 5.9
    Over $100 Billion 26 0.4 9,210.0 65.0
    Total 6,058 100.0 14,169.6 100.0

    * Excludes insured U.S. branches of foreign banks.

    ** Average consolidated total assets minus average tangible equity, with adjustments for banker's banks and custodial banks.

    Changes in Assessments

    Significant changes to deposit insurance assessments take effect in the third quarter of 2016. The reserve ratio (the fund balance as a percent of estimated insured deposits) increased to 1.17 percent in the second quarter of 2016 from 1.13 percent in the prior quarter. Under FDIC regulations, several changes to the assessment system take effect beginning the quarter after the DIF reserve ratio first reaches or exceeds 1.15 percent.

    Decrease in Overall Assessment Rates

    Overall initial assessment rates will decline from a range of 5 basis points to 35 basis points to a range of 3 basis points to 30 basis points beginning in the third quarter, pursuant to regulations approved by the FDIC Board of Directors (Board) in February 2011 and April 2016. As a result of this change, FDIC estimates that regular assessments are expected to decline by about one third.

    New Pricing Method for Established Small Banks

    The April 2016 final rule adopted by the Board amends the way insurance assessment rates are calculated for established small banks.5,6 The rule updates the data and methodology that the FDIC uses to determine risk-based assessment rates for these institutions to better reflect risks and to help ensure that banks that take on greater risks pay more for deposit insurance than their less risky counterparts.

    The rule revises the financial ratios method used to determine assessment rates for these banks so that it is based on a statistical model that estimates the probability of failure over three years. The rule eliminates risk categories for established small banks and uses the financial ratios method for all such banks (subject to minimum or maximum assessment rates based on a bank’s CAMELS composite rating). Changes to assessments approved in the April final rule are revenue neutral; that is, they leave aggregate assessment revenue collected from small banks approximately the same as it would have been absent the final rule.

    Table 2 shows the schedule of initial and total assessment rates that will apply beginning in the third quarter of 2016. The rate schedule incorporates both the reduction in initial assessment rates from a range of 5 basis points to 35 basis points to a range of 3 basis points to 30 basis points and the new pricing method for established small banks. The FDIC estimates that assessment rates for approximately 93 percent of small banks will decline with the adoption of the new rate schedule.

    Table 2
    Initial and Total Base Assessment Rates*
    (In basis points per annum)
    After the Reserve Ratio Reaches 1.15 Percent**
      Established Small Banks
    CAMELS Composite
    Large & Highly Complex Institutions
    1 or 2 3 4 or 5
    Initial Base Assessment Rate 3 to 16 6 to 30 16 to 30 3 to 30
    Unsecured Debt Adjustment*** -5 to 0 -5 to 0 -5 to 0 -5 to 0
    Brokered Deposit Adjustment N/A N/A N/A 0 to 10
    Total Base Assessment Rate 1.5 to 16 3 to 30 11 to 30 1.5 to 40

    * Total base assessment rates in the table do not include the Depository Institution Debt Adjustment (DIDA).

    ** The reserve ratio for the immediately prior assessment period must also be less than 2 percent.

    *** The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured depository institution’s initial base assessment rate; thus, for example, an insured depository institution with an initial base assessment rate of 3 basis points will have a maximum unsecured debt adjustment of 1.5 basis points and cannot have a total base assessment rate lower than 1.5 basis points.

    Large Bank Surcharges and Small Bank Assessment Credits

    On March 15, 2016, the FDIC Board approved a final rule to increase the DIF to the statutorily required minimum of 1.35 percent of estimated insured deposits.7 Congress, in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), increased the minimum DIF reserve ratio from 1.15 percent to 1.35 percent and required that the ratio reach that level by September 30, 2020. Further, the Dodd-Frank Act required that, in setting assessments, the FDIC offset the effect of the increase in the minimum reserve ratio from 1.15 to 1.35 percent on banks with less than $10 billion in assets.

    To satisfy these requirements, the final rule imposes on large banks a surcharge of 4.5 basis points of their assessment base, after making certain adjustments.8 The surcharges are to begin the quarter after the reserve ratio first reaches or surpasses 1.15 percent.9 Therefore, beginning with the third quarter 2016 assessment period, large banks will pay quarterly surcharges in addition to their lower regular risk-based assessments.

    The FDIC expects that surcharges will last eight quarters. In any event, surcharges will continue through the quarter in which the reserve ratio first meets or exceeds 1.35 percent, but not past the fourth quarter of 2018. If the reserve ratio has not reached 1.35 percent by the end of 2018, a shortfall assessment will be imposed on large banks to close the gap.

    Small banks will receive credits to offset the portion of their assessments that help to raise the reserve ratio from 1.15 percent to 1.35 percent. When the reserve ratio is at or above 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.

    TABLE I-C. Insurance Fund Balances and Selected Indicators

    DIF Reserve Ratios

    Deposit Insurance Fund Balance and Insured Deposits

    TABLE II-C. Problem Institutions and Failed Institutions

    TABLE III-C. Estimated FDIC-Insured Deposits by Type of Institution

    TABLE IV-C. Distribution of Institutions and Assessment Base by Assessment Rate Range

    Number of FDIC-Insured 'Problem' Institutions

    Assets of FDIC-Insured 'Problem' Institutions


    Footnotes

    1 Throughout the insurance fund discussion, FDIC-insured institutions include insured commercial banks and savings associations and, except where noted, exclude insured branches of foreign banks.

    2 Other borrowed money includes FHLB advances, term federal funds, mortgage indebtedness, and other borrowings.

    3 Figures for estimated insured deposits in this discussion include insured branches of foreign banks, in addition to insured commercial banks and savings institutions.

    4 There is an additional adjustment to the assessment base for banker’s banks and custodial banks, as permitted under Dodd-Frank Wall Street Reform and Consumer Protection Act.

    5 Generally, banks that have less than $10 billion in assets that have been federally insured for at least five years.

    6 https://www.gpo.gov/fdsys/pkg/FR-2016-05-20/pdf/2016-11181.pdf.

    7 https://www.federalregister.gov/articles/2016/03/25/2016-06770/assessments.

    8 Large banks are, generally, banks with assets of $10 billion or more.

    9 The assessment base for the surcharge will be a large bank’s regular assessment base reduced by $10 billion (and subject to adjustment for affiliated banks).