FDIC Quarterly Banking Profile
DEPOSIT INSURANCE FUND TRENDS
FIRST QUARTER 2016
DIF Reserve Ratio Rises 2 Basis Points to 1.13 Percent Insured Deposits Increase by 2 Percent Final Rule Approved in March 2016 to Raise DIF to 1.35 Percent of Insured Deposits Final Rule Approved in April 2016 Revises Calculation of Insurance Assessments for Small Banks
Total assets of the 6,122 FDIC-insured institutions increased by 2 percent ($325.6 billion) during the first quarter of 2016. Total deposits increased by 2 percent ($239.5 billion), domestic office deposits increased by 1.8 percent ($201.3 billion), and foreign office deposits increased by 3 percent ($38.2 billion). Domestic interest-bearing deposits increased by 2.8 percent ($218.4 billion), and noninterest-bearing deposits decreased by 0.6 percent ($17.1 billion). For the 12 months ending March 31, total domestic deposits grew by 5 percent ($528.2 billion), with interest-bearing deposits increasing by 6.3 percent ($483.4 billion) and noninterest-bearing deposits increasing by 1.5 percent ($44.8 billion).1 Other borrowed money increased by 5.2 percent, securities sold under agreements to repurchase declined by 17.1 percent, and foreign office deposits declined by 4.1 percent over the same twelve-month period.2
Total estimated insured deposits increased by 2 percent in the first quarter of 2016.3 For institutions existing at the start and the end of the most recent quarter, insured deposits increased during the quarter at 3,900 institutions (64 percent), decreased at 2,201 institutions (36 percent), and remained unchanged at only 30 institutions. Estimated insured deposits increased by 5 percent over the 12 months ending March 31, 2016.
The Deposit Insurance Fund (DIF) increased by $2.5 billion during the first quarter of 2016 to $75.1 billion (unaudited). Assessment income of $2.3 billion and unrealized gains on securities of $412 million drove the fund balance increase. Interest on investments of $147 million and a negative provision for insurance losses of $43 million also contributed to fund balance growth. First quarter operating expenses reduced the fund balance by $415 million. One insured institution, with assets of $67 million, failed during the first quarter. The DIF’s reserve ratio was 1.13 percent on March 31, up from 1.11 percent at December 31, 2015, and 1.03 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 March 31, by institution asset size category.
Distribution of the Assessment Base for FDIC-Insured Institutions*
by Asset Size
Data as of March 31, 2016
|Asset Size||Number of Institutions||Percent of Total Institutions||Assessment Base**
|Percent of Base|
|Less Than $1 Billion||5,397||88.2||$1,123.7||8.1|
|$1 - $10 Billion||616||10.1||1,522.4||10.9|
|$10 - $50 Billion||69||1.1||1,396.0||10.0|
|$50 - $100 Billion||15||0.2||957.8||6.9|
|Over $100 Billion||25||0.4||8,951.9||64.2|
* 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.
Achieving the Minimum Reserve Ratio and Calculating Small Bank Assessments5
On March 15, 2016, the FDIC Board of Directors (Board) approved a final rule to increase the DIF to the statutorily required minimum of 1.35 percent of estimated insured deposits.6 Congress, in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), increased the minimum DIF reserve ratio, the ratio of the fund balance to estimated insured deposits, 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 banks7 a surcharge of 4.5 basis points of their assessment base, after making certain adjustments.8 Large banks will pay quarterly surcharges in addition to their regular risk-based assessments. (Overall regular risk-based assessment rates will decline once the reserve ratio reaches 1.15 percent, as approved by the FDIC Board in 2011.9)
The final rule will become effective on July 1 of this year. If the reserve ratio reaches 1.15 percent before that date, surcharges will begin July 1. If the reserve ratio has not reached 1.15 percent by that date, surcharges will begin the first quarter after the reserve ratio reaches 1.15 percent. 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. After the reserve ratio reaches 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.
On April 26, 2016, the Board adopted a final rule that amends the way insurance assessment rates are calculated for established small banks.1010 It 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. Financial measures used in the financial ratios method are updated to be consistent with the statistical model.
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). The final rule preserves the overall reduction in assessment rates that will apply once the DIF reaches 1.15 percent and adopts the assessment rate schedules shown in Table 2.
Initial and Total Base Assessment Rates*
(In basis points per annum)
After the Reserve Ratio Reaches 1.15 Percent**
|Established Small Banks
|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.
The aggregate assessment revenue collected from small banks will be approximately the same as it would have been without the changes in the rule. The FDIC estimates that assessment rates under the final rule will be lower than current rates for about 93 percent of small banks and higher for about 7 percent of small banks. This final rule is also effective on July 1. If the reserve ratio reaches 1.15 percent before that date, the revisions in the final rule will begin July 1. If the reserve ratio has not reached 1.15 percent by that date, the revisions will begin the first quarter after the reserve ratio reaches 1.15 percent.
TABLE II-C. Problem Institutions and Failed Institutions